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Tuesday, 03/12/2013 3:12:27 PM

Tuesday, March 12, 2013 3:12:27 PM

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OPEC: U.S. Shale Oil to Cut Into Demand
Updated March 12, 2013, 1:20 p.m. ET

The Organization of the Petroleum Exporting Countries cut its forecast of demand for its oil this year, citing growing production from U.S. shale deposits.

If the scaled-back forecast proves correct, OPEC could be on track to have its lowest share of the global oil market in more than 10 years. OPEC's move comes as industry experts increasingly question whether the producers' group, which has had a decisive influence on the oil market since the 1970s, can maintain its position amid a boom in U.S. oil production resulting from shale- rock drilling technology.

OPEC members said 2013 demand for their crude will be lower than previously forecast as output in non-member countries, particularly North American shale oil, ramps up. Here, roughnecks add a pipe extension to drill deeper into the Bakken formation near Oungre, Saskatchewan, in June 2012.
Senior figures in OPEC initially played down the threat of the shale-oil boom, but in its most recent market report, published Tuesday, OPEC said expected increases in North American oil production would trim another 100,000 barrels a day from the forecast demand for its crude this year, putting it 350,000 barrels a day below its level in 2012.

According to calculations by The Wall Street Journal based on historical data and the current forecasts from OPEC, if the group only pumps enough to satisfy demand for its crude this year, it would be supplying 33.1% of expected overall oil demand this year, down from 35% in 2012 and the lowest level in 11 years.

Demand for OPEC's own oil is now expected to fall to 29.7 million barrels a day in 2013, compared with 30.1 million barrels a day in 2012, the group said.

OPEC production sometimes exceeds demand for its crude, implying that some of the oil it sells is put into storage rather than consumed.

In 2013, non-OPEC oil supply is expected to grow by 1 million barrels a day in total, OPEC said. This is due mainly to growing production in the U.S., which is forecast to hit its highest level since 1985, it said.

Rising U.S. oil production is expected to continue pressuring OPEC. A study by the International Energy Agency in October forecast that by 2020 U.S. oil output could overtake that of OPEC's kingpin, Saudi Arabia, forcing the producer group to shift its trading patterns.

Africa's largest OPEC member, Nigeria, has already seen its oil exports to the U.S. almost halve between 2011 and 2012, according to data from the U.S. Energy Information Administration.

The producers' group said shale-oil production faces many challenges if it is to meet its forecasts, such as the high rates of decline in production associated with the type of wells being drilled. "The risks associated with the U.S. supply forecast remain high and careful follow-up of current production data is required in order to re-evaluate the projections as the year progresses," it said.

Carsten Fritsch, senior commodity analyst at Commerzbank AG, CBK.XE -3.12% said signs of stronger oil consumption could help OPEC by lifting forecast demand for its oil. "Most indicators for this spring indicate oil demand picking up," Mr. Fritsch said.