Oil market highlights, demand, supply and forecast for 2017

For 2017, demand for OPEC crude was also revised up by 0.1 mb/d from the previous report and projected to increase by 0.8 mb/d to average 32.7 mb/d.

Oil market highlights, demand, supply and forecast for 2017Crude Oil Price Movements
The OPEC Reference Basket rose by $4.98 in October, to average $47.87/b. ICE Brent and NYMEX WTI also surged, up by $4.15 and $4.71, to average $51.39/b and $49.94/b, respectively. Prices were lifted by declining US oil inventory levels and discussions to bring forward market rebalancing. However, prices came under pressure from a rise in US oil rig counts, a stronger US dollar, and profit taking. The ICE Brent-NYMEX WTI spread narrowed to $1.45/b, encouraging US imports of Brent-related grades. World oil demand growth is expected to increase.

World Economy
World economic growth forecasts remain unchanged at 2.9% for this year and 3.1% for 2017. The OECD forecast also remains at 1.6% and 1.7% for 2016 and 2017, respectively, although growth in the Eurozone has been revised up to 1.6% and 1.3% for this and the coming year. The forecasts for China were also revised up to 6.7% in 2016 and 6.2% in 2017, while growth in India has been left unchanged at 7.5% for this year and 7.2% for the coming year. Russia is forecast to see a stronger recovery of 0.8% in 2017, following a contraction of 0.6% this year. Brazil’s growth was unchanged at 0.4% in 2017 after a contraction of 3.4% this year.

World Oil Demand
World oil demand growth is expected to increase by 1.23 mb/d in 2016 to average 94.40 mb/d. This follows a marginal downward adjustment to account for the slower-thanexpected performance of Latin America and the Middle East, which was almost entirely offset by better-than-expected oil demand growth data from OECD Europe and Asia Pacific. In 2017, world oil demand growth is seen at 1.15 mb/d, unchanged from the October MOMR to average 95.55 mb/d.

World Oil Supply
Non-OPEC oil supply in 2016 is now expected to contract by 0.78 mb/d, following a downward revision of around 0.1 mb/d from the October MOMR, to average 56.20 mb/d. In 2017, non-OPEC supply growth was revised down slightly by 10 tb/d to 0.23 mb/d, averaging 56.43 mb/d. OPEC NGLs are expected to average 6.43 mb/d in 2017, an increase of 0.15 mb/d over the current year. OPEC crude production, according to secondary sources, increased by 0.24 mb/d in October to average 33.64 mb/d.

Product Markets and Refining Operations
Product markets in the Atlantic Basin continued to strengthen in October. The positive performance of the middle of the barrel, amid stronger demand and falling inventories, allowed gasoil crack spreads to show a sharp recovery. Meanwhile, some outages fuelled a tightening sentiment in the gasoline market. In Asia, margins remained healthy, supported by stronger regional demand amid the peak of regional refinery maintenance.

Tanker Market
Tanker market sentiment experienced a general improvement in October, as freight rates in both dirty and clean segments of the market increased. Dirty tanker spot freight rates averaged 13% higher over the previous month on the back of improved tonnage requirements and seasonal demand, with VLCCs achieving the highest gains. Chartering activities edged up in October, although mostly remaining below year-ago levels.

Stock Movements
OECD total commercial stocks fell in September to stand at 3,052 mb, some 304 mb above the five-year average, as crude and product inventories showed surpluses of 165 mb and 138 mb, respectively. In terms of days of forward cover, OECD commercial inventories stood at 65.7 days in September, some 6.5 days above the seasonal average.

Balance of Supply and Demand
Demand for OPEC crude in 2016 is estimated to stand at 31.9 mb/d, a gain of 1.9 mb/d over last year. In 2017, demand for OPEC crude is forecast at 32.7 mb/d, an increase of 0.8 mb/d over the current year.

World Economy
Global growth remains unchanged for 2016 at 2.9% and 3.1% in 2017. While OECD growth remains at 1.6% for 2016 and 1.7% for 2017, Euro-zone and UK figures have been revised up from 1.5% to 1.6% and 1.6% to 1.8%, respectively, in 2016 and from 1.2% to 1.3% and 0.7% to 0.8%, respectively, in 2017. The US GDP growth forecast remains unchanged at 1.5% for 2016 and 2.1% for 2017, but given that the economic agenda of the incoming US administration needs still to be specified, uncertainties to both the upside and the downside exist. Also, Japan’s GDP growth forecast remains unchanged at 0.7% for 2016 and 0.9% for 2017.

The forecast for major emerging economies also remains at the same level as in the previous month, with the exception of Russia, which was revised up to a GDP growth forecast of 0.8% in 2017, and China, for both this year and the next. China experienced three solid quarters of 6.7% growth, leading to a 2016 GDP growth forecast of the same level. Consequently, the 2017 GDP growth forecast was also revised up to 6.2% from 6.1%.

Numerous uncertainties for global economic growth throughout the remainder of the year and for 2017 remain. Among these uncertainties, policy issues across the globe bear considerable weight, as do monetary policy decisions, which remain important in the near term. It is expected that the US Federal Reserve (Fed) will raise interest rates in December, while the European Central Bank (ECB), the Bank of Japan (BoJ), the Bank of England (BoE), and the People’s Bank of China (PBoC) will maintain relatively more accommodative stances.

World Oil Demand
World oil demand growth for 2016 was adjusted down slightly by 10 tb/d from the previous month’s report to stand at 1.23 mb/d, averaging 94.40 mb/d. For 2017, growth is expected to be around 1.15 mb/d, unchanged from the previous report, at 95.55 mb/d.

World Oil Supply
World liquids supply in October increased by 0.97 mb/d m-o-m to average 96.32 mb/d. Year-o-year, the global supply rose 0.88 mb/d. Non-OPEC supply in October, including OPEC NGLs, increased by 0.74 mb/d to average 62.68 mb/d, while OPEC crude oil production rose by 0.24 mb/d to average 33.64 mb/d, according to secondary sources.

The non-OPEC oil supply estimation for 2016 has been revised down by 0.1 mb/d since the October MOMR to now show a contraction of 0.78 mb/d to average 56.20 mb/d. This revision was due to higher-than-expected 3Q16 declines in the US, Mexico, Norway, the UK, Malaysia, Kazakhstan and China, which were partially offset by higher output from Canada, Russia and other OECD Europe.

Non-OPEC production in 2H16 is expected to be lower than in 1H16, despite the continued rise in US rig counts, the end of seasonal maintenance, and the startup of new projects.

For 2017, non-OPEC supply growth has also been revised down by a marginal 10 tb/d to show an increase of 0.23 mb/d. For the year, non-OPEC supply is expected to average 56.43 mb/d.

Expectations for OPEC NGL production remain unchanged, growing by 0.16 mb/d in 2016 and 0.15 mb/d in 2017.

Forecast for 2017
For 2017, demand for OPEC crude was also revised up by 0.1 mb/d from the previous report and projected to increase by 0.8 mb/d to average 32.7 mb/d. Within the quarters, all the quarters were revised up by 0.1 mb/d. The first and second quarters are expected to increase by 1.3 mb/d and 0.3 mb/d, respectively, while the third and the fourth quarters are projected to increase by 0.8 mb/d and 0.7 mb/d, respectively, versus the same quarters this year.