Our forecast for global demand growth remains unchanged at 1.5 mb/d in 2017 (or 1.6%) and 1.3 mb/d in 2018 (or 1.3%). Revisions have been made to data for Nigeria, Germany and Iraq. The baseline for oil demand has been raised by roughly 0.2 mb/d.
– Global oil supply rose 0.2 mb/d in November to 97.8 mb/d, the highest in a year, on the back of rising US production. Output was nonetheless down 1.1 mb/d on a year ago when Russia and Middle East OPEC producers pumped at record rates. Non-OPEC supply is set to rise by 0.6 mb/d in 2017 and 1.6 mb/d next year.
– OPEC crude supply fell in November for the fourth consecutive month to 32.36 mb/d, down 1.3 mb/d on a year ago. Output was lower in Saudi Arabia, Angola and Venezuela. Compliance with agreed cuts rose to 115%, the highest this year, and lifted the 2017 average to 91%.
– OECD commercial stocks fell 40.3 mb in October to 2 940 mb, their lowest level since July 2015. They are now 111 mb above the five-year average. Chinese crude stocks likely fell in October for the first time in a year. Preliminary global stocks data for November shows a mixed picture.
– Benchmark crude prices rose by $4-5/bbl on average in November and traded at their highest level in more than two years in early December. The extension of the OPEC/non-OPEC output cuts and, latterly, the closure of the Forties pipeline system were factors.
– Global refinery throughput in 3Q17 reached a record high at 81.2 mb/d, even including the impact of Hurricane Harvey, but has fallen back in 4Q17 due to maintenance. Global margins declined in November, losing almost $1/bbl.
Happy New Year?
This week’s closure of the Forties pipeline network that carries about 400 kb/d of North Sea oil added momentum to Brent crude oil prices that have settled above $60/bbl since the end of October. For the time being, in response to the Forties pipeline incident, we have reduced our estimate for UK production in December by 300 kb/d, and we will revisit this as the situation becomes clearer. After the initial surge that understandably accompanies such a major supply disruption, the market has settled down again and, unless another dramatic event occurs in what remains of 2017, it looks as if the Brent crude price will average about $54/bbl for the year, an increase of twenty percent on 2016. For the producers at least, 2017 has been encouraging. Will this carry over into the New Year?
In trying to answer the question, we have been given an important signal by OPEC’s decision on 30 November to extend their production cuts – assisted by ten non-OPEC producers led by Russia – until the end of 2018. In compiling our outlook, we assume that crude production from OPEC and its non-OPEC partners remains flat. This assumption is then laid alongside our forecast that the growth in global oil demand will be 1.3 mb/d, slightly down on the 1.5 mb/d we see in 2017.
On considering the final component in the balance – non-OPEC production – we see that 2018 might not be quite so happy for OPEC producers. Just as the OPEC oil ministers were sitting down in Vienna, our colleagues at the US Energy Information Administration released data showing that for September US crude oil output increased month-on-month by 290 kb/d to reach 9.48 mb/d, the highest monthly average since April 2015 and 928 kb/d above a year ago. Preliminary weekly data suggests that US production increased further into early December. Recently, US drilling activity and well completion rates have picked up again, suggesting higher production to come in a few months. Consequently, we have raised our annual growth forecast for total US crude oil to 390 kb/d this year and 870 kb/d for 2018. Impressive though this seems, according to recent investor updates, the new mantra in the US shale regions is “moderation”, reflecting a desire to greet stronger prices as an opportunity to consolidate rather than to launch yet more headlong expansion. The flexibility and ingenuity of the shale sector raises challenges to forecasters. Even so, when our US outlook is added to expectations for the other producers, output from non-OPEC countries could rise by 1.6 mb/d in 2018, an increase of 0.2 mb/d to our forecast in last month’s Report.
So, on our current outlook 2018 may not necessarily be a happy New Year for those who would like to see a tighter market. Total supply growth could exceed demand growth: indeed, in the first half the surplus could be 200 kb/d before reverting to a deficit of about 200 kb/d in the second half, leaving 2018 as a whole showing a closely balanced market. A lot could change in the next few months but it looks as if the producers’ hopes for a happy New Year with de-stocking continuing into 2018 at the same 500 kb/d pace we have seen in 2017 may not be fulfilled.Previous Next
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