The gradual recovery of the world economy continues and stronger-than-anticipated growth in 1Q17 has lifted the world GDP growth forecast for 2017 to 3.4%, up from the 3.1% growth seen in 2016. This positive momentum is expected to continue into the second half of the year. In the OECD, growth in the second half is forecast to remain broadly at the healthy level seen in the first half of this year, even with political uncertainties as after recent elections in the UK. Developments in the emerging economies, however, are expected to vary. The pace of growth in China is forecast to continue slowing gradually in 2H17, while momentum in India is seen picking up as the strong negative impact from demonetisation fades. Better growth in the second half is also expected in Russia and Brazil, although this will depend on commodity price trends and – in the case of Brazil – political developments. Monetary policies will remain a focus as the US Federal Reserve may raise interest rates further in 2H17, which could create some capital outflows from the emerging economies. Overall, the underlying global dynamic continues to improve despite challenges from political developments. Moreover, commodity prices – and oil prices in particular – will continue to be a key determinant for the well-being of most producer economies and hence will remain influential for global growth.
Global oil demand is forecast to pick up in 2H17. The second part of the year will exhibit a 2 mb/d increase in total consumption in the line with the seasonal average to reach 97.4 mb/d, compared to 95.4 mb/d in 1H17 (Graph 1). The OECD is forecast to see a potential increase of around 0.2 mb/d y-o-y. OECD Americas, particularly the US, is the largest contributor to this growth as demand for transportation fuels receives an extra boost during the summer driving season. Demand in OECD Europe is seen rising marginally, while consumption in the OECD Pacific is expected to contract, with healthy demand from South Korea somewhat moderating the decline. In the non-OECD region, oil demand is projected to rise by an average of 1.0 mb/d y-o-y in 2H17. Oil demand growth is projected to be supported by India as consumption rebounds mainly from the negative impact of demonetisation in the first half of the year. China is also foreseen contributing to oil demand growth, supported by developments in the petrochemical industry and transportation sector.
On the supply side, non-OPEC oil supply in the second half of the year is anticipated to increase by 0.5 mb/d compared to the first half, to average 58.4 mb/d. The US is the main driver behind this higher growth, contributing 0.76 mb/d followed by Brazil and Canada with 0.12 mb/d and 0.06 mb/d, respectively. Offsetting some of this growth will be lower production, mainly from Russia1 (-0.13 mb/d), China (-0.06 mb/d), Indonesia (-0.06 mb/d) and Norway (-0.05 mb/d). In terms of regional oil supply, the OECD is seen growing by 0.71 mb/d in the second half, which will broadly offset the declines of 0.18 mb/d expected in FSU and elsewhere. The decline seen in the overhang in OECD commercial oil inventories in the first four months of the year – from 339 mb to 251 mb compared to the five-year average (Graph 2) – is expected to continue in the second half, supported by production adjustments by OPEC and participating non-OPEC producers.
These trends along with the steady decline in oil in floating storage, indicate that the rebalancing of the market is underway, but at a slower pace, given the changes in fundamentals since December, especially the shift in US supply from an expected contraction to positive growth. In light of these developments, OPEC and the participating non-OPEC countries decided to extend production adjustments for a further period of nine months in recognition of the need for continuing cooperation among oil exporting countries in order to achieve a lasting stability in the oil market.
Source: OPECPrevious Next
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