Mar­ket Watch

Oil and Gas - - CONTENT -

World eco­nomic growth in 2017 has been sup­ported by strong mo­men­tum across all ma­jor economies and sec­tors and the healthy mo­men­tum is ex­pected to con­tinue in 2018, with growth fore­cast at 3.7%. Here are high­lights from the world oil mar­kets by OPEC

WORLD OIL DE­MAND

World oil de­mand growth in 2017 re­mains un­changed from the pre­vi­ous MOMR at 1.53 mb/d. China is pro­jected to lead oil de­mand growth in the nonOECD with 0.46 mb/d, fol­lowed by Other Asia, pri­mar­ily In­dia, with 0.28 mb/d and OECD Amer­i­cas with 0.24 mb/d.

In 2018, world oil de­mand is ex­pected to grow by 1.51 mb/d. OECD will con­trib­ute pos­i­tively to oil de­mand growth, adding some 0.28 mb/d, whereas the bulk of the growth will come from the non-OECD with 1.23 mb/d of po­ten­tial growth.

WORLD OIL SUP­PLY

World oil sup­ply in Novem­ber in­creased by 0.84 mb/d m-o-m from the pre­vi­ous MOMR to av­er­age 97.44 mb/d, rep­re­sent­ing an in­crease of 0.35 mb/d y-o-y. Pre­lim­i­nary non-OPEC oil sup­ply, in­clud­ing OPEC NGLs, was up by 0.98 mb/d m-o-m in Novem­ber to av­er­age 64.99 mb/d. For 2017, non-OPEC sup­ply is es­ti­mated to grow by 0.81 mb/d y-o-y in 2017 to av­er­age 57.82 mb/d, rep­re­sent­ing an up­ward re­vi­sion of 0.15 mb/d for growth from last month’s re­port. This up­ward re­vi­sion was mainly due to an up­ward re­vi­sion of Rus­sia’s oil sup­ply growth in 2017 by 0.09 mb/d, due to the lat­est up­dated pro­duc­tion data. The non-OPEC sup­ply fore­cast for next year’s growth was also re­vised up by 0.12 mb/d to 0.99 mb/d y-o-y, mainly ow­ing to ex­pected higher US oil sup­ply growth, lead­ing to an av­er­age of 58.81 mb/d for the year. The 2018 fore­cast for non-OPEC sup­ply is as­so­ci­ated with con­sid­er­able un­cer­tain­ties, par­tic­u­larly re­gard­ing US tight oil de­vel­op­ments.

OPEC NGLs and non-con­ven­tional liq­uids pro­duc­tion av­er­aged 6.31 mb/d in 2017, an in­crease of 0.17 mb/d y-o-y. In 2018, OPEC NGLs pro­duc­tion is fore­cast to grow by 0.18 mb/d to av­er­age 6.49 mb/d. In Novem­ber 2017, OPEC crude oil pro­duc­tion de­creased by 133 tb/d, ac­cord­ing to se­condary sources, to av­er­age 32.45 mb/d.

BAL­ANCE OF SUP­PLY AND DE­MAND IN 2017

OPEC crude for 2017 was re­vised down by 0.2 mb/d from the pre­vi­ous month to stand at 32.8 mb/d, rep­re­sent­ing an in­crease of 0.6 mb/d from 2016 level. Within the quar­ters, the first quar­ter was re­vised up by 0.1 mb/d, while the se­cond and third quar­ters were re­vised down by 0.2 mb/d each and fourth quar­ter by 0.3 mb/d.

The first and the se­cond quar­ter in­creased by 1.0 mb/d and 0.6 mb/d, re­spec­tively, while the third and fourth quar­ters are es­ti­mated to grow by 0.4 mb/d and 0.2 mb/d, re­spec­tively, when com­pared to the same quar­ter last year.

BAL­ANCE OF SUP­PLY AND DE­MAND IN 2018

OPEC crude for 2018 was also re­vised down by 0.3 mb/d from the pre­vi­ous re­port to stand at 33.2 mb/d, around 0.3 mb/d higher than 2017 level. Within the quar­ters, both the first and the fourth quar­ters were re­vised down by 0.2 mb/d, while the se­cond and the third quar­ters were re­vised down by 0.3 mb/d each. The first and the se­cond quar­ters are pro­jected to in­crease by 0.4 mb/d and 0.1 mb/d ver­sus the same quar­ter this year, while, the third and the fourth quar­ters are ex­pected to in­crease by 0.2 mb/d and 0.7 mb/d com­pared to the same quar­ter in 2017.

OUT­LOOK FOR 2018

World eco­nomic growth in 2017 has been sup­ported by strong mo­men­tum across all ma­jor economies and sec­tors. Growth now stands at 3.7%, up from an ini­tial fore­cast of 3.2%. The healthy mo­men­tum is ex­pected to con­tinue in 2018, with growth fore­cast at 3.7%. The OECD, sup­ported by the US and the Euro-zone and to some ex­tent Ja­pan, is con­sid­ered a vi­tal el­e­ment of this

dy­namic, with growth of 2.2% in 2018, only slightly be­low this year’s 2.3%. More­over, up­side from the en­vis­aged tax-re­form may lead to even higher growth in the US.

In the non-OECD, the growth mo­men­tum in China is fore­cast to slightly de­cel­er­ate in 2018 to 6.5%, com­pared to 6.8% in 2017. In­dia is likely to re­bound from slug­gish growth of 6.5% in 2017 to show growth of 7.4% in 2018. Brazil and Rus­sia are fore­cast to con­tinue their re­cov­ery at growth of 1.5% and 1.8% in 2018, af­ter 2017 growth of 0.8% and 1.9%, re­spec­tively. As many economies now ex­pand at or even above growth po­ten­tial, the up­side may be lim­ited. More­over, geopo­lit­i­cal de­vel­op­ments and the pace of mone­tary pol­icy nor­mal­i­sa­tion will be as­pects that will need close mon­i­tor­ing in 2018. Sta­bil­ity in the oil mar­ket also re­mains a key con­trib­u­tor for global eco­nomic growth.

World oil de­mand growth is es­ti­mated to have reached 1.53 mb/d in 2017, well above the ini­tial fore­cast and main­tain­ing the con­sis­tently healthy growth seen over the last three years. OECD Europe con­trib­uted most of the up­ward re­vi­sions, due to solid progress in the in­dus­trial sec­tor in ad­di­tion to strong trans­porta­tion de­mand. In non-OECD, China oil de­mand growth has been ro­bust in 2017 as the petro­chem­i­cal and the trans­porta­tion sec­tors con­tin­ued to ex­pand at a healthy pace and the over­all eco­nomic ac­tiv­i­ties im­proved from ini­tial ex­pec­ta­tions.

For 2018, the main as­sump­tions be­hind the fore­cast are firm eco­nomic growth, lend­ing sup­port to in­dus­trial and con­struc­tion fu­els in both OECD and non-OECD. Ex­pan­sion in the trans­porta­tion sec­tor is ex­pected to pro­vide the bulk of oil de­mand growth. Growth in petro­chem­i­cal de­mand is pro­jected to be one of the fastest- grow­ing con­trib­u­tors in US, China, South Korea and the Mid­dle East. As such, world oil de­mand growth is es­ti­mated at 1.51 mb/d in 2018, com­pared to 1.26 mb/d in the ini­tial fore­cast.

Non-OPEC oil sup­ply growth 2017 per­formed well above ini­tial mar­ket ex­pec­ta­tions to now stand at 0.81 mb/d. Higher-than-ex­pected sup­ply growth in the US, Canada and Kaza­khstan have been the key con­trib­u­tors to the up­ward re­vi­sions, par­tic­u­larly US tight oil. As a re­sult, US oil out­put is now ex­pected to grow at 0.61 mb/d this year. The mo­men­tum seen this year is ex­pected to con­tinue in 2018 on the back of in­creased in­vest­ment in US tight oil and im­proved well ef­fi­ciency. Higher out­put from Canada, due to al­ready sanc­tioned oil sands projects, will also con­trib­ute to next year’s growth. As a re­sult, non-OPEC sup­ply is ex­pected to grow by 0.99 mb/d in 2018. The fore­cast is as­so­ci­ated with con­sid­er­able un­cer­tain­ties, par­tic­u­larly re­gard­ing US tight oil de­vel­op­ments.

Based on the above fore­casts, OPEC crude in 2018 is ex­pected to stand at 33.2 mb/d, which is higher than the OPEC pro­duc­tion lev­els seen this year. Com­bined with con­tin­ued ef­forts by OPEC and non-OPEC to sup­port oil mar­ket sta­bil­ity, this should lead to a fur­ther re­duc­tion in ex­cess global in­ven­to­ries, ar­riv­ing at a bal­anced mar­ket by late 2018.

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