Tuesday, June 21, 2011

Crude Oil Supply & Demand

On Friday, June 10, a Saudi newspaper reported that Saudi Arabia will unilaterally raise output to 10mbd in July, from 8.8mbd in May. The report suggests that Riyadh, led by King Abdullah, is asserting its authority over fellow members of OPEC, particularly Iran, after it failed to convince the 12-member cartel to lift output. We have production data starting during 1973 for Saudi Arabia. The Kingdom’s output hasn’t exceeded 9.5mbd since February 1982. So if the Saudis actually do pump 10mbd, that will prove that they actually do have excess capacity and that they are willing to use it to keep a lid on oil prices.

World oil demand rose to a record 88.9mbd over the past 12 months through May. Pacing the advance was demand in the “New World” countries, which rose to a record 50.8mbd. China’s demand for crude oil rose to a new record high of 9.6mbd over the past 12 months through May. Lagging behind was the demand of the “Old World” countries, i.e., the US, Western Europe, and Japan. Their usage was 38.1mbd, still well below their record peak of 41.9mbd during August 2005.

Japan’s crude oil demand was especially weak following the recent earthquake and tsunami. The latest data also show some “demand destruction” in the US and in Europe.

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