OPEC meets on the 12th. We believe the status quo is likely to persist, as OPEC looks back upon 2012 with a sense of achievement and satisfaction with the oil price. Despite a weak demand backdrop and rising US supplies, the OPEC basket price is on track to average above $100 per barrel for the eighth straight quarter.
Looking ahead, consensus expectations are for the ‘call on OPEC crude' to be lower next year, while OPEC production is set to run well ahead of that call, suggesting an oversupplied physical market. However, as we detail in this piece, consensus expectations have tended to systematically underestimate the ‘call on OPEC crude', and 2013 could well be the same again. In particular, macro and demand indications from Asia are continuing on a strong recovery path, posing upside risk to global oil demand growth in 2013. We believe that despite rising non-OPEC supplies, the ‘call on OPEC crude' will be flat y/y in 2013, at around 30 mb/d.
However, even outside the realms of upside surprises to the ‘call on OPEC crude', we believe that the group still has enough ammunition to keep control of the market in 2013, as the 1.3 mb/d of ‘overproduction' relative to the quota gives OPEC leeway to work with, should it need to cut back output, without having to sacrifice much of their revenues needed for investments and budgets. Ultimately, despite rising political differences, OPEC's determination to protect the downside still remains intact in our view, especially post the Arab Spring, as increased domestic spending has been part of their response to popular unrest.