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RIYADH: With demand pattern unclear and global economy emitting confusing
signals, Opec had little option other than rolling over the crude output ceiling
and ‘staying the course.’
There were too many contradictory signals, making the emerging scenario still
more confusing. The global consumption pattern, so very crucial to Opec decision
making, was still far from clear.
Collapsing demand pattern has been a cause of real concern to Opec and the
ministers were overtly conscious of the fact at the Vienna moot.
The rate at which demand recovers remains a critical – yet unknown – variable.
And the ministers were required to take a decision without being able to peep
into foreseeable future.
And despite some glimmers of hope, the US Federal Reserve continues to see
‘significant downside risks’ for the US economy, with the global financial
system still ‘vulnerable to further shocks.’
And while the global economic fundamentals continue to be dire and unemployment
is rising across the world, stock markets are interestingly buoyant and oil
prices have been edging higher over the last few weeks. Demand estimates are at
best still murky.The IEA estimates the oil demand to fall by three per cent this
year, the sharpest drop in about 30 years, to about 83 million barrels a day.
The world today is using much less oil than it did a year ago.
In the first quarter of 2009, global oil demand was an estimated 3.6 million bpd
down on the previous year; the London based Centre for Global Energy Studies (CGES)
said in its just released Monthly Oil Report.
In the current quarter too, the CGES projects a year-on-year drop in demand of
around 1.5 million bpd. However, interestingly the CGES points out it is
beginning to look as if global oil consumption in 2Q09 could turn out to be
higher than it was in 1Q09, potentially bringing to an end a run of five
consecutive quarters of falling global oil demand.
This is not to say that the outlook for oil demand growth is good, but that it
is less awful than it has been in recent months, the influential energy think
tank commented.
Then the issue of quota compliance was also very much on the minds of the
ministers occupying the central place on Friday. With some easing of the
situation, compliance with the cuts now seems slipping down – gain — to 77 per
cent in April as against 80 per cent the month earlier.
Till yet Riyadh has been bearing a significant portion of the burden of the
output cut, even going below its sanctioned quota – apparently to try and ensure
balanced markets. But not everyone seems complying fully and thus compliance was
again stressed at the just concluded Vienna moot.
The question remained how can the oil price, along with equities, defy reality
and show a measure of exuberance in the face of such a depressing economic
reality? One answer is speculators returning to markets.
Opec has been raising voice as in recent days there has been a substantial rise
in the open interest positions (both long and short) of the group of
non-reporting players, or small-scale speculators, at NYMEX.
These small-scale speculators now hold the largest net long positions. And
markets seem to be holding on to this lifeline.
And the Opec decision needs to be seen in this very perspective. It is after all
prudent to defer drastic measures unless one is sure of how things would shape.
And this is what exactly the Opec did. |
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