Observation TD Economics www.td.com/economics February 3, 2010 HIGHLIGHTS CRUDE OIL MARKET STILL FACING MASSIVE GLUT • Non-OECD oil demand grew The Great Recession had quite an impact on the crude oil market, with demand at a healthy 5.1% clip in Q4; OECD demand still in the red and prices plunging in late-2008 and early-2009. And even though the global at -3.4% recovery got underway during the second half of last year, this blow to the crude • Growth in oil production oil market is going to continue to be felt for some time, as the fundamental picture picked up steam in Q4, out- remains quite weak. pacing consumption The recovery in the global economy has been led by emerging markets, and • Global inventories remain the story is similar for the crude oil market. Demand from non-OECD countries elevated at 95 days supply – China in particular – picked up steam in the fourth quarter, growing at a 5.1% (Y/Y) clip. Meanwhile, any economic improvement seen in OECD economies has yet to translate into a significant rebound in crude oil demand, as consumption in developed nations was down 3.4% (Y/Y) during the final quarter of the year. But, while still in the red, this is a marked improvement from the 6.1% (Y/Y) contraction seen during the second quarter. Put together, total world demand for crude oil ended 2009 slightly (0.3%) above year-earlier levels. But compared to 2007 levels, which is a more accurate ‘pre-recession’ benchmark, global demand finished the year down by about 2%. With consumption still quite weak, there is plenty of oil to go around. Nonethe- less, as prices rose closer to the US$70 per barrel mark, OPEC compliance rates began to slip, and ended the year at only 49%. So after curbing output by 7-8% during the first three quarters of 2009, OPEC production was down by only 2.6% in the final three months of the year. And with non-OPEC growth accelerating to 4.9% during the same period – with increased production seen in Brazil, U.S., Canada, and the Former Soviet Union – total global output increased by 1.6% in the fourth quarter, and was 1.3 million barrels per day greater than demand. In fact, after showing great improvement through most of 2009, the supply-demand balance shot up dramatically during the last two months of the year. This doesn’t GLOBAL CRUDE OIL MARKET 2009 Q1 Q2 Q3 Q4 Y/Y % change PRODUCTION GROWTH OPEC -8.3 -7.2 -7.6 -2.6 Non-OPEC 1.9 1.9 3.9 4.9 World -2.6 -2.1 -1.2 1.6 Dina Cover, Economist 416-982-2555 DEMAND GROWTH OECD -4.9 -6.1 -3.5 -3.4 mailto:firstname.lastname@example.org Non-OECD 0.2 2.3 3.0 5.1 World -2.7 -2.3 -0.6 0.3 Million b/d SUPPLY-DEMAND BALANCE 0.1 0.0 0.2 1.3 Source: Energy Intelligence Group Observation TD Economics February 3, 2010 2 www.td.com/economics bode well for the already elevated global inventories, which at 95 days supply, are well-ahead of the 5-year average of GLOBAL OIL INVENTORIES: DAYS SUPPLY 86 days supply. Number of days 98 98 So while demand for crude oil is improving alongside the 97 97 economic recovery, supply has been rising at a faster pace, 96 96 95 95 preventing the market from working down inventories and 94 2009 94 2008 moving back into a more balanced position. What’s more, 93 93 OPEC spare capacity jumped from 1.5 million barrels per 92 92 91 91 day to 4.4 million barrels per day in 2009, and is expected 90 2007 90 to continue to increase through 2011 to nearly 6 million 89 89 barrels per day as new capacity comes online. Hence, even 88 88 87 87 once the rebound in crude oil demand is in full swing, the 86 5-year average 86 supply overhang, combined with growing excess capacity, 85 85 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec will limit any upward pressure on prices. The U.S. dollar, however, is likely to have a positive influence on prices Source: Energy Intelligence Group this year, as we expect it to depreciate against the euro and a basket of currencies through most of 2010 (USD/EUR to barrel this year. Next year, once global economic activity be 1.45 at year-end). As a result, we expect oil prices to picks up steam, oil prices are likely to head a little higher, remain in a relatively tight range, averaging about US$80 per averaging US$85 per barrel. This report is provided by TD Economics for customers of TD Bank Financial Group. It is for information purposes only and may not be appropriate for other purposes. The report does not provide material information about the business and affairs of TD Bank Financial Group and the members of TD Economics are not spokespersons for TD Bank Financial Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. The report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, anv are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise TD Bank Financial Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.
Pages to are hidden for
"Observation"Please download to view full document