OPEC Cuts Demand Estimate for Its Crude on Recession (Update1)

Jan. 15 (Bloomberg) -- The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world’s oil, said demand for its crude will fall 4.2 percent this year as the deepening recession reduces spending on fuels.

Consumption of OPEC’s crude will shrink 1.4 million barrels a day to 29.5 million barrels a day, according to a monthly report from the producer group today. That level of demand is 720,000 barrels less than it predicted last month. OPEC also shaved its world oil demand estimate for 2009 to 85.66 million barrels a day.

OPEC agreed to a record 9 percent reduction in supply targets at its last meeting in December to try to halt the plunging price of oil, which has dropped more than $100 a barrel in New York in the past six months. This week Saudi Arabia, OPEC’s biggest member, said it will curb output by more than was announced at the Dec. 17 summit in Oran, Algeria.

“Since the meeting in Oran, negative news on the world economy has only continued, despite the acceleration of governmental efforts to stimulate the economy,” OPEC’s Vienna- based secretariat said today.

Oil futures traded below $40 a barrel on the New York Mercantile Exchange today after a government report yesterday showed U.S. crude inventories were at their highest in 16 months as fuel consumption declines. The Federal Reserve reported the U.S. economy weakened further in the past month.

OPEC lowered its estimate for 2009 worldwide oil demand this year by 20,000 barrels a day to 85.66 million barrels a day. That means demand will contract by 180,000 barrels a day, or 0.2 percent, similar to the percentage in last month’s report.

‘Major Contraction’

There will be a “major contraction” in demand among members of the Organization for Economic Cooperation and Development, with the United States being the “main contributor” to this reduction, the report said.

The International Energy Agency, an adviser to 28 nations, will publish its own monthly oil market report tomorrow. The Paris- based IEA is the last major forecasting agency to maintain a forecast of rising demand for 2009, with a prediction in its Dec. 11 report for a gain of 400,000 barrels a day. The IEA uses economic projections from the International Monetary Fund.

Speaking in Madrid today, IEA chief economist Fatih Birol said IEA demand estimates will “reflect world economic figures.”

Falling Demand

Last year, world oil demand declined for the first time since 1983, according to the IEA.

OPEC cut its forecast for oil supply from outside the group to 51.15 million barrels a day, “primarily due to lower expectation for Russia, Azerbaijan, Brazil, Mexico, and Oman.” That still leaves an increase of 580,000 barrels a day, or 1.1 percent, this year over 2008.

Indonesia, which formally left OPEC on Jan. 1, is now categorized in the monthly report’s supply and demand tables as a non-OPEC producer.

Crude production from all 13 OPEC members in December, including Indonesia, averaged 30.282 million barrels a day, a decline of 833,700 barrels a day from November, the report said, citing secondary-source estimates that include analysts and news agencies.

For the 11 members in OPEC’s quota system, which excludes Indonesia and Iraq, December production was 27.111 million barrels a day. That’s 2.266 million barrels a day more than the new collective target for those countries of 24.845 million barrels a day, which took effect on Jan. 1.

Saudi Output

Saudi output fell the most in December, dropping by 555,500 barrels a day to 8.258 million barrels a day, according to the report. Angolan, Nigerian and Iraqi production rose.

Saudi Oil Minister Ali al-Naimi said Jan. 13 that the kingdom is currently producing 8 million barrels a day, about level with its revised quota effective this month, and plans to reduce production further in February.

OPEC’s 12 remaining members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

The benchmark crude price used by OPEC, derived from the cost of oil produced by each of its 12 members, recovered to $41.31 yesterday, from $40 the previous day, the secretariat said in an e- mail today.