The Oil Market Outlook

Investec Commodities and Dr. Bassam Fattouh, take a look at global oil demand, along with expected trends for 2018/2019

Oil demand growth main contributor to the market rebalancing

• 2016 oil demand registered a strong year seeing growth of 1.5 million barrels per day
• 2017 oil demand increased by a further 1.7 million barrels per day
• 2018 expected to register another strong number above 1.5 million barrels per day
• Global oil demand is estimated to be 99.3 million barrels per day in 2018

OPEC sticking to the deal

• OPEC and non-OPEC oil giant Russia have agreed to extend oil output cuts until the end of 2018
• The deal to cut oil output by 1.8 million barrels a day was adopted in January 2017 by the 14-member OPEC, Russia and nine other global producers
  
• OPEC compliance remains high
• Saudi Arabia has been leading the pack focusing not only on production cuts but also exports which fell sharply from their highs in November 2016
• We see Saudi Arabia sticking to the deal even if risk over-tightening the market
• OPEC crude oil production edged lower in February to 32.1 million barrels per day

US Shale: Putting a cap on the oil price

• Total US oil production is estimated at 10 million barrels per day (including Shale)
• Total US Shale oil production is estimated 4.67 million barrels per day
• US Shale will put a cap on the oil price in the near term
• Shale oil production reverted back to growth in April 2017
• Production reached year on year growth of 1.18 million barrels per day in December 2017
• Shale oil production is expected to grow 1.2 million barrels per day in 2018

IMO 2020 and shockwaves

• The International Maritime Organization has set a global limit for sulphur in fuel oil used on board ships of 0.50% from 01 January 2020
• This will significantly reduce the amount of sulphur oxide emanating from ships and should have major health and environmental benefits for the world
• Fuel oil demand is around 7.5 million barrels per day in 2017 of which around 3.5 million barrels per day is HSFO used mainly in the shipping industry
• Shipping industry face three options
• Install scrubbers to mitigate the use of higher-sulphur fuel
• LNG bunkering
• Switch to marine diesel
• Depending on assumptions about scrubber uptake, the boost to marine diesel is expected to be around 2.1 million barrels per day

Source: EIA, IEA, IMO, Energy Aspects