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To: Tom Smith who wrote (276908)	2/11/2004 6:56:35 AM
From: zonder	Read Replies (1) \| Respond to of 436258

OPEC cuts output and we're projected to need more My understanding is that OPEC's decision to cut oil output has more to do with an expectation for China's oil demand to normalize than anything to do with US oil consumption. In September 2003, OPEC announced that it planned to remove 900,000 barrels per day of oil from the markets, bringing its quota (excl. Iraq) to 24.5 mn bpd. However, since then, OPEC production levels have increased each month, reaching 1.6 mn bpd above the stated quota. Meanwhile, US inventories are at their lowest level since 1975, while the price of oil is hovering around the levels seen before Iraq's invasion. The reason for this apparent discrepancy is high demand from China that increased twice the rate of its GDP growth in 2003. This suggests that they have been building up oil reserves. OPEC seems to be assuming that this year, China's oil demand will normalize to the historical 1:1 relationship with its GDP growth. Still, as we witnessed since September, guessing OPEC's production levels is not as easy as believing their stated production quotas...