Estimates of Euro-zone GDP growth for 2006 have been revised up following higher industrial production
growth in France and Germany. The GDP of the Euro-zone is forecast to grow by 2.3% in 2006. The estimate
for the USA is unchanged at 3.4%. The US housing sector remains weak but lower energy costs, if sustained,
may support consumerspending. In Japan, business investment is expected to maintain the momentum of the
economy as a reduction in excess capacity and solid profits should support corporate cash flows. GDP growth
may reach 2.8% despite some weakening in consumer spending. The estimate for Chinese growth in 2006 is
unchanged at 10.2% but the estimate for India has been raised to 8.1%. India continues to benefit from strong
growth in all sectors: manufacturing, services and financial activities. Overall, the 2006 forecast for world growth
remains unchanged at 5%.
The better outlook for the Euro-zone extends into next year and the forecast for GDP growth in 2007 has been
increased to 1.6%. The growth forecasts for Latin America and the countries of the Former Soviet Union have
also been raised. There has been no change to the forecasts for the United States or Japan. US economic growth
is forecast to fall to 2.6% in 2007 and Japan may only achieve 1.9%. Growth in developing countries is also
expected to be lower in 2007, falling to 5.5% andChina may also see a modest deceleration to 9%. The world
economy is forecast to grow by 4.4% next year.
The sharp decline in the oil prices over the past months should soon have a noticeable impact on headline rates of
inflation. The economic effect of lower oil prices is not expected to be large, even if lower prices are sustained.
Monetary policy is set to be restrictive in the major financial centres in order to bring household and business
spending into line with productive potential. This will lower demand pressures on scarce resources and,
eventually, reduce corerates of inflation. In so far as consumer real incomes benefit from the higher purchasing
power created by lower oil prices, this may require the central banks to extend the duration of the tightening process but ongoing rates of economic growth will not be significantly higher.
Easing tensions in the Mideast amid steady OPEC supply and expectations of slower economic growth caused a
sharp drop in prices September. Ample supply amid lower refinery rates in Asia halting demand growth exerted
downward pressure on the petroleum complex amid a healthy winter fuel stockpile. The monthly average of the
OPEC ReferenceBasket fell nearly $10/b or 14% to average $59.34/b. In the first weeks of October, the
Basket continued to drift down reaching $54.90/b on 13 October.
With the end of the driving season and steady distillate stock-builds, product market sentiment changed significantly, exerting downward pressure on product prices and refinery margins across the globe. A moderate
downward correction in refinery margins during the shoulder season is not outside market expectation, but the
combination of a light autumn maintenance schedule with high distillate and natural gas stocks could be a threat to
product and crude prices over thenext few months. However, weather conditions remain a key wild card as
colder-than-normal winter in the Western Hemishphere may turn the product market’s current bearish
Asia OPEC spot fixtures continued to decline for the third consecutive month, averaging 12.3 mb/d in
September, a drop of 0.5 mb/d from the previous month, driven by the decline in production and the slow-down
in demand. Sailings from OPEC increased almost 1.0 mb/d to nearly 23.9 mb/d but remain 0.5 mb/d below the
corresponding month of 2005. Thecrude tanker market showed a mixed picture with freight rates for VLCCs
remaining strong despite a downward trend, while Suezmax and Aframax saw rates deteriorate on most routes.
The weakness was more pronounced in the product tanker market, especially for tankers trading in West of
Suez. Both crude and product tanker markets witnessed significant declines in early October.
World oil demand in 2006 is estimated to grow by 1.0 mb/d or 1.2% to average 84.2 mb/d. In light of
preliminary data for the first three quarters of 2006, world oil demand growth was revised down by 0.1 mb/d for
2006 from the last MOMR. Warm weather, higher oil prices and the relatively-lower natural gas prices affected
oil demand mostly in the OECD countries. Robust US oil demand growth in September was not sufficient to
offset the decline seen in the first two monthsof summer. Hence, OECD oil demand growth in the third quarter
was revised down by 0.3 mb/d y-o-y, with a recovery in the fourth quarter. Strong economic growth in both the
Middle East and China increased y-o-y third quarter oil demand. World oil demand growth forecast for the year
2007 remains unchanged at a moderate rate of 1.3 mb/d or 1.5%. China and the Middle East will lead the world
oil demand growth with 0.42 mb/d and 0.30 mb/d respectively.
Non-OPEC oil supply is expected to average 51.3 mb/d in 2006, representing an increase of 1.1 mb/d over
2005 and a slight upward revision versus the last assessment. A series of adjustments have been made including the addition of historical data for biodiesel in OECD countries as well as revisions to conventional oil project
schedules in a number of countries, but primarily in the USA and Australia. Preliminary data for the month of
August and September puts totalnon-OPEC supply at around 51 mb/d and 51.7 mb/d, representing a y-o-y
growth of 0.9 mb/d and 2.8 mb/d respectively. Expectations for unplanned shutdowns in non-OPEC have now
been reduced to less than 0.1 mb/d from an average of 0.6 mb/d in the first half of the year. In 2007, non-OPEC oil supply is expected to average 53 mb/d, representing an increase of 1.8 mb/d versus 2006. The main
contributions are expected to come from FSU, Africa and North America. In September, OPEC production
averaged 29.7 mb/d, a drop of 0.1 mb/d from the previous month.
OECD Preliminary data shows that OECD total net oil imports continued their upward trend to reach 27.9 mb/d
in September, an increase of 112,000 mb/d over the previous month and almost 1.0 mb/d higher than the
corresponding month of 2005. US net oil imports inched down slightly to 12.9 mb/d, but displayed y-o-y growth
of 760,000 b/d, driven by strong stock-builds. Similarly, Japan’s net oil imports showed a significant growth of
11% from a year earlier afterrebounding to 4.3 mb/d. China’s crude oil imports reversed the downward trend
and surged by around 280,000 b/d in August to 2.8 mb/d, implying net oil imports of 3.3 mb/d which
corresponds to 38% y-o-y growth while India’s net oil imports continued to hover around 2.0 mb/d, an increase
of 3.5% from a year earlier.
Total commercial oil inventories in the USA witnessed a build of 22.0 mb to 1,088.7 mb in September, an
increase of 7.6% and 10.0% above the year-ago level and the five-year average. The stock-build came entirely
from products as crude oil declined on a monthly basis. Despite the draw, crude oil stocks remained at
comfortable levels of 7.1% and14.0% above the same month last year and the five-year average. Moving to
Eur-16 (Eu-15 plus Norway), total commercial oil stocks slipped by 6.4 mb but were still 6.4% above the
five-year average, which was entirely due to a further reduction in crude oil inventories as well as middle distillate
stocks. Japan’s total commercial inventoriesreported an increase of 6.1 % in August compared to the previous
month, more than 4% above the year-ago level and the five-year average, mainly as a result of the rise in product
The demand for OPEC crude in 2006 is expected to average 28.7 mb/d, representing a downward revision of
0.2 mb/d versus last month. In 2007, the demand for OPEC crude is expected to average 28.1 mb/d,
representing a decline of 0.6 mb/d versus 2006. On a quarterly basis, the forecast shows that demand for OPEC
crude is expected at 28.7 mb/d in 4Q06, 29.2 mb/d in 1Q07 and 27 mb/d in 2Q07.