The first quarter of this year witnessed a significant increase in the value of the OPEC Reference Basket. The
upward push was driven by a number of factors, including supply disruptions in the North Sea and some
countries in West and East Africa, supply fears due to geopolitical tensions, and increasing speculative
activities in the crude futures markets. By the end of the quarter, the Basketís value had reached over $120/b.
In the second quarter, prices fell below $100/b, as ample supply and concerns about the gloomy economic
outlook, particularly in the Euro-zone, outweighed any lingering supply fears, leading to a speculative sell off.
However, in the third quarter, the Basket bounced back to around the $110/b level, where it currently remains.
While the world economy experienced another year of deceleration in 2012, some indicators are pointing to a
tentative recovery in the second half of the year and this momentum is likely to be carried over into 2013. The
main support comes from the improving economy in the US, which has been lifted by some advances in the
labour and the housing markets. Moreover, the contraction in the Euro-zone has been less-than-expected in the
3Q12. With the most recent initiatives helping to foster growth, the Euro-zone could potentially return to growth
in the coming year, although this might prove challenging. However, Japan is the main economy in the OECD
that is forecast to continue decelerating significantly in 2013, although the economy could also benefit from
renewed momentum in its largest trading partners. Meanwhile, the major emerging economies appear to have
engineered a soft landing in 2012 and growth levels should be mostly at higher levels in the coming year.
China, and to some extent India, are particularly expected to benefit from improving world trade in 2013.
As a result, the coming year could see an end to the deceleration in the world economy, with growth of 3.2%,
compared to growth of 3.0% in the current year (Graph 1). However, many uncertainties remain. The most
important will be avoiding the fiscal cliff in the US, further decisions on austerity issues in the Euro-zone, and
balancing the need to reduce the fiscal debt burden while stimulating growth in Japan. In the emerging
economies, it remains to be seen how domestic demand will be improved, given the likely continuation of low
growth in their main exporting markets in the developed world.
Turning to the oil market, the forecast for global oil demand in 2012 has seen ongoing downward revisions to
currently stand at 0.8 mb/d. Unlike in the previous year, the downward revisions in oil demand growth were not
confined to the OECD, but also came from China and India. In contrast, Japanís shut down of almost all its
nuclear power plants led the country to rely more heavily on other types of energy. Japanese oil use in power
plants increased from 7.5% of the total energy consumption in the previous year to 19.7%. Similarly, Indiaís oil
demand was boosted by the massive electricity shut-down and summertime flooding. World oil demand growth
in 2013 is expected to remain at 0.8 mb/d. However, weakness in the global economy is causing a great deal of
uncertainty for the forecast for world oil demand, which has a downward risk, especially in the first half of the
year. A large amount of this risk can be attributed not only to the OECD but also to China and India.
The forecast for non-OPEC supply growth in 2012 also experienced downward revisions to stand at 0.5 mb/d.
Since the start of the year, non-OPEC supply has suffered various setbacks due to technical, geological, weather
and geopolitical factors. North America is leading the supply growth in 2012, while OECD Western Europe,
Africa, and the Middle East are driving the decline. In 2013, non-OPEC production is expected to increase by
0.9 mb/d, supported by growth from North America, Africa, Eurasia, and Latin America, while OECD Western
Europe is likely to see a continued decline. OPEC NGLs and non-conventional oils are expected to increase by
0.4 mb/d and 0.2 mb/d in 2012 and 2013.
Based on these projections, the growth in total non-OPEC supply including OPEC NGLs and non-conventional
oils of around 1.1 mb/d is expected to outpace the increase in world oil demand growth in 2013. This would
result in demand for OPEC crude averaging 29.7 mb/d in 2013, or around 0.4 mb/d less than the level estimated
for the current year (Graph 2). Despite the considerable uncertainties affecting supply and demand in the
market, and without underestimating the potential impact of non-fundamental factors, the improving economic
outlook for the coming year should help support oil market stability.