OPEC revised up on Monday its forecast for global oil demand growth this year, but noted that sanctions, tariffs, and the U.S. withdrawal from the Iran nuclear deal point to rising uncertainty over the global economic growth momentum.
In its closely watched Monthly Oil Market Report out today, OPEC revised up its global oil demand growth estimate by 25,000 bpd from the April report, to 1.65 million bpd. The upward revision was mainly the result of firm OECD data for the first quarter of 2018. Better-than-expected data from Asia, including India and Latin America, also prompted OPEC to revise oil demand growth in non-OECD nations higher. China is expected to lead oil demand growth this year, followed by other Asian countries and OECD Americas, OPEC said.
In terms of non-OPEC oil supply, the cartel revised the forecast marginally higher compared to last month’s assessment, by 10,000 bpd, and now expects non-OPEC supply growth at 1.72 million bpd year on year in 2018.
Discussing global economic growth, however, OPEC pointed out that “the build-up of potentially disruptive concerns has increased,” citing the latest U.S. sanctions on Russia, tariffs on Chinese products in combination with considerable requests by the U.S. in trade negotiations with China, U.S. tariffs on steel and aluminum, prolonged North American Free Trade Agreement (NAFTA) negotiations, and the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) with Iran.
“In conclusion, global growth momentum seems to be well established in the short-term, and the most recent weakness, seen mainly in some OECD economies, may only be temporary. Major emerging economies’ growth dynamics have thus far counterbalanced this soft spot, and global growth may recover in the remainder of the year due to US fiscal stimulus and a rebound in OECD growth. However, after a period of a considerable growth, uncertainties seem to be on the rise,” OPEC said. Related: Bank Of America: Oil Prices Could Hit $100 Next Year
Another highlight of OPEC’s report is that total OECD commercial oil stocks—the cartel’s current metric for the production pact’s success—were just 9 million barrels above the latest five-year average, according to preliminary data for March 2018.
OPEC’s production increased by 12,000 bpd in April over March, to average 31.93 million bpd in April, as Saudi Arabia boosted its production by 46,500 bpd, according to OPEC’s secondary sources. The increase in Saudi Arabia (still within its quota under the deal), as well as small increases in Algeria, Iran, and Libya, were offset by another slump in Venezuela’s production and lower output in Angola, Nigeria, and Qatar.
Venezuela’s crude oil production in April plunged by 41,700 bpd from March to average 1.436 million bpd, according to OPEC’s secondary sources.
By Tsvetana Paraskova for Oilprice.com
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But the fact that this surge in demand comes amid rising geopolitical concerns tells us that strong bullish trends can more than offset adverse geopolitical developments unless there is a supply disruption in one of the major oil producers such as Saudi Arabia, Iraq or Iran or a war.
It also tells us that the global oil market has mitigated the impact of these geopolitical concerns by factoring them in long time ago. Still, they can add $1-$2 to a barrel of oil.
The OPEC report also highlights the fact that the OPEC/non-OPEC production cut agreement has done a sterling job in reducing OECD commercial stocks to just 9 million barrels above the latest five-year average. That is why the production cut agreement will become a permanent fixture of any future oil strategies by OPEC and Russia well into the future.
I believe oil prices are heading towards $80 a barrel this year, rising to $80-$85 in 2019 and hitting $100 or higher by 2020. Nothing in the global oil market so far indicates that there could be a different trajectory for oil prices.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London