18-06-2018

OPEC: World oil market prospects for the second half of 2018

Recent developments in the oil market have led to pronounced uncertainty about the second half of the year. Year-to-date (y-t-d) at the end of May, crude oil prices are 30% higher than in the same period last year, with ICE Brent averaging above $70/b for the first time since 2014. Draws in crude oil inventories, healthy oil demand and geo-political developments have supported this rising trend. NYMEX WTI futures also rose to average $65.09/b during this time, but were trailing other markets due to high US oil production as well as the strengthening of the US dollar. Recently, crude oil futures have lost some momentum amid uncertainty as traders prepare for potentially more supply returning to the market.

Global economic activity has slowed in 1Q18, with growth below expectations in the major OECD economies. The global growth forecast for 2018 remains at 3.8%, with a pick up expected in the second half of the year, led by the US, whose economic performance will be supported by the fiscal stimulus measures. Moreover, Japan and the Euro-zone are projected to accelerate in 2H18, following a slow start to the year. While the OECD shows upside potential, the major emerging economies will likely slow from relatively higher activity in 1H18. China is expected to continue financial tightening, which combined with monetary measures in the US, could dampen growth in 2H18. India is also forecast to show lower growth in the second half of the year, after a strong recovery during 1H18

Brazil and Russia are projected to remain stable in 2H18, subject to short-term commodity prices and political developments. Moreover, the re-emergence of global trade barriers, continued growing debt levels and potentially rising volatility in asset markets amid ongoing monetary tightening, are some of the challenges that may negatively impact the 2H18 growth dynamic.

Turning to the oil market, global oil demand growth is anticipated at 1.61 mb/d y-o-y in 2H18, with total oil consumption projected to surpass the 100 mb/d threshold during 4Q18. In 2H18, OECD countries are projected to sustain the positive momentum with most of the growth seen in OECD Americas, mainly supported by a healthy US economy. OECD Europe is forecast to continue to show steady oil demand growth, largely driven by middle distillates. Non-OECD countries are again projected to lead oil demand growth with 1.28 mb/d y-o-y in 2H18. Growth is mainly focused in China, in the transportation and industrial sectors. The steady economic development in most Other Asian countries, including India, will also contribute.

While oil demand in the US, China and India shows some upside potential, downside risks might limit this potential going forward, including a slowdown in the pace of economic growth in some major economies, stronger impact of policy reform with regard to retail prices, and further substitution toward natural gas. Meanwhile, non-OPEC oil supply in 2H18 is anticipated to increase by 2.0 mb/d y-o-y. The US is the main driver, contributing 1.4 mb/d to growth, followed by Canada and Brazil. Non-OPEC supply growth is forecast to show further upside potential for the rest of the year, due to higher drilling activity in the US, more new project start-ups in Brazil and possibly higher output following the end of heavy maintenance at upgrading facilities in Canada.

Given the Secretariat’s forecast for 2H18, demand for OPEC crude is projected at 33.3 mb/d, down by 0.5 mb/d from 2H17. However, looking at various sources, considerable uncertainty as to world oil demand and non-OPEC supply prevails, leading to a wide forecast range for demand for OPEC crude of around 1.8 mb/d. This outlook for 2H18 warrants close monitoring of the factors impacting both world oil demand and non-OPEC supply that will shape the outlook of the oil market going forward.

Source: OPEC

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