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OPEC anticipates growing oil demand and likely price resilience
Alan Bailey Petroleum News
The Organization of the Petroleum Exporting Countries, in its March report on the global oil market, commented that although the price of oil dropped by 5 percent in February, year-on-year the Brent crude price had increased by $11.77 per barrel, with West Texas Intermediate rising by $9.93 over the same time period. And although there was a sell-off in oil futures in February, pricing in the futures market suggests an overall view among traders that oil prices will tend to move higher.
Growing demand Worldwide, oil demand has been growing - OPEC now estimates that average demand in 2017 was 97.04 million barrels per day, an average increase of 1.62 million barrels per day for the year. The organization forecasts demand growth of 1.60 million barrels per day in 2018. This is happening against a backdrop of continuing worldwide economic growth: OPEC anticipates global economic growth remaining stable at about 3.8 percent for 2018. Growth in the Eurozone and Japan is expected to be somewhat lower than that, while growth in India and China is expected to be higher, at 7.2 percent and 6.4 percent respectively.
The report comments that economic growth in the United States is increasing from 2.3 percent in 2017 to an anticipated 2.7 percent in 2018, as tax cuts and improved business and consumer sentiment fuel the economy. However, the report cautions that a rising fiscal deficit and the potential for rising inflation, coupled with “trade-related initiatives,” could dampen that growth projection.
Year-on-year, U.S. oil demand has grown slightly, driven primarily by transportation and petrochemical demand. However, gasoline demand dropped by about 1 percent.
The U.S. dollar The report also comments on the impact of the value of the U.S. dollar in international exchange markets on the oil price, given that oil is generally priced in dollars. The dollar has been declining relative to other major currencies, although the possibility that the Federal Reserve will need to increase the pace at which it is tightening the money supply could support the dollar’s value. The report indicates that, despite evolving currency exchange rates, the price of oil has increased over the past year in all major currencies. There tends to be an inverse relationship between the trade-weighted dollar index and the dollar-denominated price of oil, but the OPEC report does not comment on this issue.
Rising non-OPEC supplies OPEC anticipates global oil supplies from non-OPEC countries to increase by 1.66 million barrels per day to 59.53 million barrels per day in 2018. The United States dominates this projected increase, with an anticipated rise of 1.46 million barrels per day to 15.08 million barrels per day, a growth of 10.2 percent. U.S. production is climbing, mainly as a consequence of shale oil development: tight oil and unconventional natural gas liquids may account for 8.8 million barrels of the 2018 total, the report says. A number of other countries, including Canada, China, Brazil, Egypt, Russia, Mexico and Azerbaijan, are also contributing to the non-OPEC production increases, while production from some other countries is decreasing.
OPEC itself has been placing limits on production from its member countries, in an effort to bolster oil prices. The OPEC report says that OPEC production averaged 32.3 million barrels per day in 2017 and was 32.2 million barrels per day in February. Saudi Arabia dominated OPEC oil production in 2017, with average production of 9.9 million barrels per day. Iraq produced at a rate of 4.4 million barrels per day, with Iran coming in at 3.8 million barrels per day and Kuwait at 2.7 million barrels per day. Russia, which is not an OPEC member but is a party to the OPEC production cap agreement, produced 4.1 million barrels of oil per day in 2017.
Global oil supplies in February stood at 98.2 million barrels, with OPEC accounting for 32.8 percent of that total. OPEC says that it anticipates demand for OPEC oil in 2018 to remain relatively steady at 32.6 million barrels per day, a level slightly below demand in 2017.
World oil trading In terms of oil trade, U.S. crude oil imports dropped by 4 percent over the previous 12 months. However, taking into account a counterbalancing sharp increase in U.S. oil exports, the net import of oil declined by 7 percent. Canada accounted for 47 percent of U.S. oil imports, with Saudi Arabia being the third highest supplier after Mexico.
Japan’s crude oil imports have also been declining.
On the other hand, imports of crude oil to China reached a new peak in January, at an average of 9.6 million barrels per day. India’s imports also rose to a record high of 4.7 million barrels per day.
Lower oil stocks A primary driver behind the relatively low oil prices of recent years has been an overhang in oil stockpiles around the world. The OPEC report says that, although commercial oil stocks rose by 13.7 million barrels in January, stocks ended up 206 million barrels lower than they had been a year earlier. Stocks appear to have fallen somewhat in February. In the United States, commercial oil stocks fell for the ninth consecutive month, to end up 11 percent lower over the course of a year but still a bit above the five-year average.
- ALAN BAILEY
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