Deutsche: Oil Demand Forecasts Overshoot

We have noted before that oil supply and demand data is pretty poor. Let’s face it, this is a product that is traded internationally with no central mechanism for purchases and sales. And certain important actors, namely OPEC members, are less than fully cooperative. But investors and commentators, hungry for anything that passes for hard information, treat fuzzy data with more respect than it deserves (note I do not object to them using this information, particularly since there are no good alternatives; I just wish there was more frequent admission of how soft it is).

Confirmation of our view comes via an article in the Oil & Gas Journal (hat tip reader Michael) which summarizes an analysis by Deutsche Bank of the accuracy of forecasts by the leading suspects and finds them to be not too good on the demand side. All exaggerated demand and supplies, but interestingly, the demand overestimates were considerably greater than ones for supply. OPEC has done best on estimating demand, the DOE on non-OPEC supply (and the forecasts there have been pretty reasonably accurate, this is not as helpful as it might seem, since OPEC is very close-mouthed about its production plans, and with such big producers more than a bit opaque, the overall supply picture is murkier than the article suggests).

The article also indicates that it expects 2008 and 2009 demand to fall markedly short of forecasts and OPEC supplies to rebound, which by implication means less pressure on oil prices.

From the Oil & Gas Journal:

The discrepancies between actual world oil supply and demand and the forecasts provided by leading agencies—the International Energy Agency, the Organization of Petroleum Exporting Countries, and the US Department of Energy—show an unreliable track record since 2001, indicated a study recently carried out by Deutsche Bank analyst Michael Lewis.

In his assessment of global oil demand and non-OPEC supply growth, Lewis found that, with the exception of 2003-04, all three agencies have been too optimistic about the strength of oil demand, with OPEC the most cautious. All three agencies have been too optimistic about non-OPEC production growth, with DOE the least bullish and therefore the most accurate in its forecasts.

Concerning global oil demand growth since 2001, Lewis found that forecasts have been “quite similar” in their under or overestimation, with OPEC the most accurate over the decade. Lewis worked out that in absolute percentage terms, since 2002 OPEC has averaged a forecasting error of 53.5%, compared with IEA’s and DOE’s error rates hovering at 70-75%. OPEC’s greater demand forecast caution “may help to explain its reluctance to increase oil quotas and production for fear of bearish implications for the oil price,” said Lewis.

However, in 2003-04, “all three agencies underestimated the surge in global oil demand and specifically the strength in Chinese and US oil demand during those years,” he noted. The discrepancy was large in 2004 as DOE forecast demand growth of some 1.6 million b/d whereas the actual increase exceeded 2.5 million b/d. In contrast, in 2005 DOE overstepped market demand accuracy by forecasting a 2 million b/d growth compared with the actual 1.3 million b/d.

Regarding oil production, all three agencies’ forecasts were relatively close to actual non-OPEC growth, which was averaging 1 million b/d for each year during 2001-04. But 2005 was the worst forecasting year as non-OPEC oil production fell to roughly 0.4 million b/d and the three agencies failed to change their growth assumptions, forecasting a non-OPEC production rise of 0.93 million b/d. Since then, non-OPEC growth levels have failed to recover the early decade levels.

DOE has tended to be the most accurate production forecaster: Since 2001 DOE has posted a forecasting error of 51% compared with 63% for IEA and 72% for OPEC.

Looking into 2009 and taking into account the removal of fuel subsidies in many parts of the developing world, Lewis sees DOE’s 1.4 million b/d oil demand forecast growth as “likely to be too optimistic and even the 0.9 million b/d assumed by the IEA and OPEC may prove too ambitious if recent history is a guide.” He said he expects the recent non-OPEC oil production rebound since 2005 set to continue in 2009.

With OPEC the most bullish in expecting a strong production rebound, this may “provide another clue as to why the cartel [is] likely to be on guard to defend against any weakness in the oil price,” concluded Lewis.

Print Friendly, PDF & Email


  1. Dean

    Anonymous, “oxygen is a finite resource?” .

    What an uninformed statement. Apparently the trees that surround you are going on strike which might start reflecting on your thinking patterns for the moment.

  2. ndk

    This is all about the reliability of forecasts, not the reliability of the supply/demand data itself. Then we go on to rely on, what else, a supply and demand forecast. Even better, it’s based on one analyst’s opinion rather than the forecasts by the organizations with the best data and track record, who themselves are only 50% accurate.

    Why even post this?

  3. Anonymous

    “What an uninformed statement.”

    Dude, trees don’t make oxygen. My example was a tautology meant to expose dogma.

  4. mxq

    “Why even post this?”

    So people realize that the massive business (and decisions) surrounding one of the world’s most strategic of resources is reliant less upon the empirical and more upon the abstract, offered up by metaphysics and whatever obfuscatory data it occasionally lobs forth.

  5. Dean

    To the Anonymous Dude challenged by photosynthesis:

    Perhaps an eponymous opinion will enlighten us as to the circumstances of your dark ages (to use an analogy to your tautology).

  6. mmm

    I hate to sound like a pedant, but trees most assuredly do not “make” oxygen. The oxygen already exists in the CO2 molecule. Trees break the chemical bonds and free the oxygen up. No new oxygen is created.

    As for “why bother with this post”, those demand forecasts have a pretty big influence on oil prices and production plans. And as the article said, their unreliability says that OPECs caution may not be posturing.

  7. Dean

    Mmm, regardless of oxygen’s origin the fact remains that oxygen is ever present in our human affairs(and therefore can be relied upon to be around is various quantities, as long as we are around).

    By further employing tree “breakers” (your superb scientific term I suppose) or sea plankton one can even accelerate O’s rate of production. Oil on the other hand can not be replaced, recycled or recaptured. Once consumed it is gone forever (that is until the next punctuated global event that turns tropical forests into organic pools of the oily type).

  8. Anonymous


    You reveal that you either never took or completely forgot high school chemistry. “Break” is the term of art for the act of serving a chemical bond. Google “chemical reactions”.

  9. Anonymous

    Regarding the oxygen thing: Look at the periodic table of elements. See the O for oxygen? There is a finite amount of oxygen atoms on this planet. Just as lead cannot be turned into gold, neither can anything else be turned into oxygen… on this planet I mean. Oxygen is a finite resource in this planet. Some oxygen atoms are elemental oxygen while others are incorporated into other molecules such as water… but there most definitely a finite amount of oxygen atoms on this planet.

  10. Dean

    NASA is planning to introduce some type of vegetation on Marsian soil for the explicit pupose of oxygen production on Mars, capable of supporting human existence.

    I believe you are confusing the terms renewable and finite. In theory, everything is finite if you think of the Universe as a closed system, yet infinite based on one’s perspective.

    BTW if you need some free lessons on anything, you just came to the right place.

  11. mxq

    I have a sneaking suspiscion that demand numbers are still way too bullish with respect to China over the next few months…from today’s FT:

    “China’s state-owned oil companies are likely to stop imports of refined products such as diesel and petrol next month after a nine-month buying spree that has left stockpiles overflowing, one of Asia’s largest refiners said…“The state refiners’ stockpiles are so full that they have been reselling the stuff,” FPCC said.”

Comments are closed.