OPEC Boosts Oil Demand Estimates, Admits Oil Prices Can’t Rise Above $55
In its latest OPEC Monthly Oil Market Report (October) the oil cartel has increased its oil demand estimates for 2017, 2018 on strengthening world economy, and weaker outlook for supplies from its rivals.
Specifically, OPEC forecasts that based on the current global oil supply/demand balance, demand for OPEC crude in 2017 is estimated at 32.8 mb/d, around 0.6 mb/d higher than in 2016. Similarly, OPEC crude in 2018 is projected at 33.1 mb/d, 350k b/d higher than September production, and ~200k b/d higher than the group estimated last month. Global oil demand seen rising +1.38m b/d, or 1.4% in 2018 to 98.19m b/d
Meanwhile, OPEC claims that oil inventories in developed nations continued to decline, -24.7m bbl to 2.996b bbl in August, curbing surplus relative to a 5-year average to 171m bbl.
Here are the key highlights from the report:
Crude Oil Price Movements
The OPEC Reference Basket rose to $53.44/b in September, its highest value since July 2015. Crude futures prices also saw gains, with ICE Brent averaging above the $55/b, supported by increasing evidence that the oil market is heading toward rebalancing. Geopolitical tensions and lower distillates stocks also pushed prices higher. ICE Brent averaged $55.51/b in September, a gain of $3.64, while NYMEX WTI increased $1.82 to average $49.88/b. Hedge funds raised net long position in ICE Brent and NYMEX WTI futures and options by almost 200,000 contracts. At the end of the month, the Brent crude contract curve had flipped into backwardation through December 2021. The sweet/sour spread widened significantly in Asia and Europe.
World Economy
Growth in the world economy continues to improve, with the forecast for 2017 revised up to 3.6% from 3.5% in last month’s report. Similarly, the 2018 forecast has been adjusted higher to 3.5% from 3.4%. The improving momentum is visible in all economies, particularly the OECD, which is seen growing by 2.2% in 2017 and by an upwardly revised 2.1% in 2018.
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