OPEC Expects World Oil Demand Growth In 2013 At 800,000 Barrels A Day

Includes: DBO, OIL, USO
by: StockRiters

The Organization of the Petroleum Exporting Countries (OPEC) today said that it expects world oil demand growth this year at 800,000 barrels a day, unchanged from its previous estimate.

In its monthly oil market report, OPEC said that economic turbulence, which has affected oil demand in the last few years, is likely to have a mild impact on oil demand in 2013. The oil cartel expects total world oil demand in 2013 at 89.6 million barrels a day.

Stable Consumption in U.S.

OPEC said in its report that the outlook for U.S. oil consumption in 2013 remains rather pessimistic after taking into account economic developments. The Vienna-based organization noted that momentum from rather stable economic factors has injected some into the country's oil demand for 2013; however, the fate of U.S. demand will be greatly influenced by the country's economic developments.

Indeed, latest economic data from U.S. has been encouraging. On Tuesday, a report from the Commerce Department had shown that retail sales rose 0.5% in December, beating consensus forecast of a growth of 0.2%. Retail sales rose more than forecast despite concerns over the fiscal cliff last month.

The biggest concern facing the U.S. economy right now is the debt and deficit issue. While lawmakers reached an agreement at the last moment to avert the fiscal cliff, there are still unresolved issues such as long-term spending cuts and debt ceiling.

Tetsu Emori, a Commodities Fund Manager at Astmax Investments in Tokyo, told Reuters that concerns about a lack of agreement on the U.S. debt ceiling are holding back prices.

China Data Eyed

OPEC noted in its report that oil demand in China is forecast to grow by 3.2% in 2012 and the same trend is expected for 2013, provided that there are no new government policies directed towards a reduction in fuel consumption. The organization added that China's economic development, along with government policies, will determine the fate of country's oil demand movements in 2013.

For much of last year, there were concerns over a hard landing in China. However, those concerns have eased as recent economic data from the world's second largest economy has shown signs of improvement. Market participants are now focused on China's fourth-quarter GDP data, which is scheduled to be released on Friday. Economists forecast growth of 7.8% for the fourth quarter.

Astmax Investments' Emori told Reuters that China's economy has bottomed out and the downside risks to China have reduced and the economy is likely to show signs of improving.

Oil Prices Edge Higher

Oil prices, meanwhile, edged higher in early trading today, helped by better-than-expected U.S. retail sales data and a report from the American Petroleum Institute, which showed that crude stockpiles rose by 46,000 barrels in the week ended January 11. Analysts were expecting a 2.3 million barrel rise in stockpiles for the week to January 11. Traders are now waiting for Energy Information Administration's data on U.S. stockpiles, which will be released later today.

At last check, Brent futures for February delivery were trading $0.27 higher at $110.57 a barrel. An outage in the North Sea Brent pipeline is also lending support to Brent prices today.

U.S. crude, meanwhile, was up $0.20 to $93.48 a barrel.

In early trading, the PowerShares DB Oil Fund (ETF) (DBO) was up 0.11% to $26.30, the United States Oil Fund LP (USO) was up 0.12% to $34.03, and the iPath S&P GSCI Crude Oil Total Return (OIL) was up 0.04% to $22.25.

Gains Capped by World Bank's Global Growth Forecast

While oil prices have edged higher in early trading today, the gains have been limited after the World Bank slashed its forecast for global economic growth. The bank now expects global economic growth at 2.4% in 2013, down from previous forecast of growth of 3%. World Bank noted in the report that weak economic recovery in developed economies is holding back the global economy.

Also capping gains today was weak economic data from Europe. A report released earlier today showed that demand for new cars dropped in December to the lowest level since 1995. The report comes a day after Germany, the euro zone's biggest economy, reported disappointing fourth-quarter GDP data.

However, the most important data this week will be the Chinese GDP numbers. If the Chinese GDP data is strong, oil prices could rise sharply.

Should You Gain Exposure to Oil?

While the World Bank has slashed its forecast for global economic growth in 2013, latest economic data from U.S. and China, the biggest consumers of oil, has been solid. Also, concerns over the euro zone debt crisis have eased considerably since last summer.

The Bank of Japan is under pressure from the newly elected government to implement monetary easing measures. The Fed Chairman Ben Bernanke also said in his speech at the University of Michigan earlier this week that the central bank is in no rush to end its quantitative easing program.

All these factors are positive for oil. However, the biggest uncertainty facing the global economy right now is the U.S. debt ceiling. I would remain on the sidelines until the debt ceiling issue is resolved. On the other hand, a timely resolution to the debt ceiling issue could spark a rally in risk assets, including oil.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.