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Monthly Oil Market Report

O P E C

12 July 2017

Feature article:

The outlook for the oil market in 2018

Oilmarkethighlights

Featurearticle

Crudeoilpricemovements

Commoditymarkets

Worldeconomy

Worldoildemand

Worldoilsupply

Productmarketsand refineryoperations

Tankermarket

Oil trade

Stockmovements

Balanceofsupplyanddemand

Monthlyendnotes

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OPEC bulletin 8–9/17

July

2017

The outlook for the oil market in 2018

In the July 2017 edition of the

Monthly Oil Market Report

(MOMR),

OPEC released its outlook for the world oil market

in 2018.

The report sees the world economy expanding by 3.4 per

cent in 2018, the same growth as in 2017, reflecting further

improvements in the global economy. This positivemomentum

could impact economic stimulus programmes.

“Given the gradual ongoing recovery, the extraordinary stim-

ulus of the past years is expected to be reduced further on both

the fiscal and particularly the monetary side,” it maintained.

Non-OECDcountries are expected to seemore robust growth

than the OECD regions.

“OECD growth is forecast at a slightly lower level, while

non-OECD economies are forecast to see some better growth,”

the report stated. “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.”

The

MOMR

added that continued growth in the global

economy in the year ahead would hinge on stability in the oil

market, and that other important factors would include geo-

political developments and the pace of monetary policy nor-

malization in major economies.

Looking at world oil demand growth, the report sees 2018

demand expanding at a rate of 1.26m b/d to reach a total of

97.65m b/d, which is down slightly from the current year, yet

in line with the average growth seen over the last five years.

“Factors driving global oil consumption in2018are expected

to be the ongoing growth in the world economy; road trans-

portation demand propelled by steady vehicle sales in the US,

China and India; capacity additions and expansions in the pet-

rochemical sector, particularly in the US; and new capacities

of propane dehydrogenation plants in China,” the report main-

tained. “Uncertainties include the higher level of substitution

towards other fuels, efficiency gains, subsidy reductions, as

well as digitalization and technological advancements.”

OECD consumption is foreseen to rise by around 190,000

b/d in 2018, while non-OECD demand is expected to increase

by 1.07m b/d, with China

and India as the major

contributors.

The global supply pic-

ture will continue to see

most new supply coming

fromnon-OPECcountries,

according to the

MOMR

.

“Non-OPEC oil sup-

ply for 2018 is fore-

cast to grow by 1.14m

b/d, higher than the

800,000 b/d growth

expected for 2017, to

average 58.96m b/d.

On a country basis, the main contrib-

utors to growth next year are expected to be the US with

860,000 b/d, Brazil with 220,000 b/d, Canada with 170,000

b/d, and Russia with 170,000 b/d,” the report stated.

Mexico and China, however, are expected to see declines

of 170,000 b/d and 160,000 b/d, respectively, mainly due

to an absence of new projects and heavy declines in mature

fields, according to the

MOMR

. Also, in the 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’, while continued production

ramp-ups are expected to support supply in Brazil and Canada.

Russia’s oil supply growth forecast takes into account the con-

tinuation of voluntary production adjustments into 1Q18.

Based on the above forecasts, the

MOMR

projects non-OPEC

supply and OPEC NGL growth to slightly outpace incremental

world oil demand, resulting in demand for OPEC crude in 2018

of 32.2m b/d. This represents a decline of 100,000 b/d from

the current year, which compares to an expected increase of

300,000 b/d in 2017 over a year earlier.

The report said that a bullish economy could provide the

needed movement towards a rebalanced global oil market.

“Abetter-than-expected improvement in theglobal 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,” it concluded.

M a r k e t R e v i e w