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Opec has revised its global economic growth upwards and says the world economy has continued to enjoy a “solid recovery” despite the social unrest in some parts of the Middle East and North Africa.
Opec increased its forecast for 2011 world economic growth by .1 per cent to 4 per cent in view of the healthy growth in the developing countries.
China’s forecast has been increased from 8.8 per cent to 9 per cent and India from 8 per cent to 8.1 per cent. The forecast for the OECD remains unchanged at 2.3 per cent, with the US at 2.9 per cent and both the Euro-zone and Japan at 1.5 per cent.
Figures from its March report show that oil demand growth remains estimated at 1.8 million barrels per day (mb/d) in 2010 and forecast at 1.4 mb/d in 2011.
Oil demand in the first quarter of 2011 was boosted by cold winter weather in the Northern Hemisphere. The sustained activities in the industrial sector contributed to stronger diesel demand across the globe while the tanker market sentiment strengthened, with spot freight rates increasing on most routes. The gains were backed by factors such as holidays in the Far East and weather conditions, and occurred despite higher bunker fuel prices and some refinery maintenance.
The report by the 12-nation oil producing states further forecasts that second quarter oil demand from non-OECD countries, will maintain its healthy level, similar to the growth seen in the first quarter.
As if to mirror the global recovery, an improvement in global PMI was also reported by JP Morgan, which moved above 57 in February, signaling an expansion for the current quarter.
However, while the colder-than-normal winter has strengthened oil demand, high oil prices could dampen consumption of OECD and non-OECD over the coming months if current price levels persist for an extended period, Opec warns.
“The recent surge in oil prices, which, if sustained for a long period, could impact growth in oil importing countries. In conjunction, resulting higher prices for industrial goods and technical services would negatively affect oil exporting countries,” it said.
“Additionally, the sovereign debt situation in the Euro-zone provides a challenge, while overheating in the emerging economies remains a potential uncertainty, particularly in China and India, along with the related problem of tackling higher inflation and the risk that policy makers might act too quickly,” it added.
The OPEC Reference Basket moved above $100 per barrel in February, the first time it crossed the $100 mark on since September 2008. The upward movement in the Basket was supported by the strong performance of the futures market, which surged on supply fears and increased speculative activities. The Basket stood at $110.71 per barrel on March 10.
Inflation is beginning to pose a challenge for policy makers in both the OECD and the developing countries, Opec said.
In the case of the OECD, this might lead to higher interest rates, which could increase the cost of servicing sovereign debt, while for developing countries the introduction of fiscal and monetary tools targeting overheating could result in a larger-than-expected decline in growth levels, it added.