Improved outlook for OECD is good news for oil industry

OPEC Bulletin Commentary September 2013

It seems an eternity since we last saw such an encouraging economic outlook for the OECD as we do now.

Perhaps we have to look back more than half a decade to 2007.

Indeed, the December 2007 issue of the OPEC Monthly Oil Market Report (MOMR) forecast 2.3 per cent for OECD GDP growth in 2008. That was consistent with a pattern of 2.7 per cent in 2007 and annual figures of two-to-four per cent growth for all the previous 13 years bar two.

We all know what happened next. The economic crash in 2008, with just 0.1 per cent average annual growth for the OECD. This was followed by minus 3.5 per cent in 2009 and derisory 1.8, 1.5 and 1.2 positive percentage rates in 2011, 2012 and (latest estimate) 2013, respectively. While it is true that the missing year here, 2010, saw a seemingly healthy 2.9 per cent, that was only to be expected after the extreme low of the year before.

And so it is with cautious optimism and guarded relief that we read in September’s MOMR such extracts as: “Overall, developed economies are recovering — albeit from low levels;” and “The main impetus behind this (second quarter) pick-up in activity has come from the OECD economies, with a healthy performance in the US and the Euro-zone returning to growth after 18 months of recession.”

However, one swallow doesn’t make a summer, as the expression goes, and we must wait a while longer to see how this positive trend develops.

Even the OECD itself warned early in September that, while there was a moderate recovery in the advanced economies, global growth was sluggish and risks remained.

Nevertheless, few will deny that the economic outlook for the OECD is brighter now than it has been for a long time. Recessions, by definition, don’t last forever.

All this is good news for the oil industry.

As the September MOMR puts it: “The recent positive developments in the OECD economies have already resulted in a gradual improvement in oil demand.” It noted that the world oil demand growth estimate for 2013 had been revised up slightly since the August issue, by 25,000 barrels/day, “reflecting higher-than-expected actual data for the first half of the year, as well as positive signs of improvement in major OECD economies, particularly in the US, UK and Germany.”

Of course, at this point, we are not overlooking what is happening elsewhere in the world economy. High levels of growth in major emerging economies have been making the pace so far this century, in terms of annual rates, even though there has been an easing of this recently. Globally, this has helped compensate for the weak performance of the OECD area since 2008.

But the fact remains that a healthy oil market needs a strong, sustainable performance from the OECD economies if it is going to function at its best in the future.

Therefore, let us hope that the present positive trend in the OECD quickly consolidates itself, providing a sound base for steady growth in the world economy and a brighter outlook for the oil industry as a whole.

OPEC Bulletin September 2013

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