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Feature Article

OPEC Monthly Oil Market Report – July 2017

v

Feature Article

The outlook for the oil market in 2018

The

world economy

is forecast to expand at 3.4% in 2018, the same growth as in 2017 (

Graph 1

). This reflects

a continued improvement in the global economy. Given the gradual ongoing recovery, the extraordinary

stimulus of the past years is expected to be reduced further on both the fiscal and particularly the monetary

side. OECD growth is forecast at a slightly lower level, while non-OECD economies are forecast to see

some better growth. India is forecast to successfully improve its GDP growth level due to the implementation

of economic reforms. Both Brazil and Russia are forecast to expand their recovery further in 2018. China will

see lower growth than in 2017, although still the second-highest growth rate of major emerging economies,

with domestic consumption providing a greater contribution. Stability in the oil market remains a key

determinant for global economic growth in the coming year. Geopolitical developments and the pace of

monetary policy normalisation in major economies will also require close monitoring.

Graph 1: GDP growth forecast for 2018

Graph 2: Growth forecast in world oil demand &

non-OPEC supply in 2018

World oil demand

growth in 2018 is estimated at 1.26 mb/d, slightly less than in the current year and

broadly in line with the average growth seen over the last five years, to total 97.65 mb/d (

Graph 2

). Factors

driving global oil consumption in 2018 are expected to be the ongoing growth in the world economy; road

transportation demand propelled by steady vehicle sales in the US, China and India; capacity additions and

expansions in the petrochemical sector, particularly in the US; and new capacities of propane

dehydrogenation plants in China. Uncertainties to the 2018 oil demand forecast include the higher level of

substitution towards other fuels, efficiency gains, subsidy reductions, and digitalisation and technological

developments. OECD consumption is foreseen to rise by around 0.19 mb/d in 2018. Non-OECD demand is

expected to increase by 1.07 mb/d, with China and India as the major contributors.

Non-OPEC oil supply

for 2018 is forecast to grow by 1.14 mb/d, higher than the 0.80 mb/d growth

expected for 2017, to average 58.96 mb/d. On a country basis, the main contributors to growth next year are

expected to be the US with 0.86 mb/d, Brazil with 0.22 mb/d, Canada with 0.17 mb/d, and Russia with

0.17 mb/d. Leading the declines in non-OPEC oil supply will be Mexico with 0.17 mb/d and China with

0.16 mb/d, mainly due to an absence of new projects and heavy declines in mature fields. US shale output

is expected to be somewhat impacted by cost inflation and a decline in well productivity as operators

expand production beyond so-called ‘sweet spots.’ Continued production ramp-ups support supply in Brazil,

while Canada is also forecast to expand its oil output, particularly from oil sands. Russia’s oil supply growth

forecast takes into account the continuation of voluntary production adjustments into 1Q18.

Based on the above forecasts, projected non-OPEC supply and OPEC NGLs growth will slightly outpace

incremental world oil demand, resulting in

demand for OPEC crude

in 2018 of 32.2 mb/d. This represents

a decline of 0.1 mb/d from the current year, which compares to an expected increase of 0.3 mb/d in 2017

over a year earlier. A better-than-expected improvement in the global economy could contribute further to oil

demand growth in the coming year, accelerating the ongoing rebalancing in the oil market and supporting

market momentum in 2018.

6.2

7.5

1.4

1.5

1.9

1.1

1.7

2.2

3.4

China

India

Russia

Brazil

OECD

Japan

Euro-zone

US

Global

Percent

Source: OPEC Secretariat.

1.14

1.26

-0.3 0.0 0.3 0.6 0.9 1.2 1.5

Asia Pacific

Other Europe

Middle East

Europe

China

Africa

Latin America

Other Asia

FSU

Americas

Total

mb/d

Oil demand

Non-OPEC supply

Source: OPEC Secretariat.