After the recent rally in oil to $87 a barrel, an increasing number of OPEC (Organization of Petroleum Exporting Countries) members have started to cheat by pumping more oil than quotas allow. News today, April 19, that production from OPEC members increased 4.6% in March from March 2009 sent oil prices tumbling. As of 1 p.m. ET today the price of West Texas Intermediate crude had fallen 2.2%, or $1.84, to $81.40 a barrel.
Oil reached a high of $87.09 a barrel on April 6 but it’s been pretty much downhill since then. That day the U.S. Department of Energy predicted that U.S. demand will average just 18.84 million barrels a day in 2010. That’s still way below demand in 2005 of 20.8 million barrels a day.
Consumption in the 30 industrialized countries that belong to the OECD (Organization for Economic Cooperation and Development) will average 45.4 million barrels a day in 2010, according to the International Energy Agency.
Demand is picking up in developing economies such as China, Brazil, and India rising to 40.09 million barrels a day on average in 2010.
But because the United States is still the world’s largest consumer of oil, growth in developing economies won’t be enough to keep oil prices rising if demand from the United States (and other developed economies) has stalled. China, the world’s second largest consumer of oil, consumes only half as much oil as the United States.
In its monthly report, released on April 14, OPEC reported that compliance with quotas among members had called to 53% in March. Producers pumping above quotas included Venezuela, Nigeria and Saudi Arabia.
And while global demand will increase this year by 1.7% to 85.5 million barrels a day, that won’t be enough to absorb increases in production from non-OPEC countries and cheating by OPEC members. The U.S Department of Energy estimates that when both demand and production increases net out, global supply will be in excess of demand by 160,000 barrels a day in 2010.