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Monthly Oil Market Report

O P E C

13 December 2017

Feature article:

Review of 2017; outlook for2018

Oilmarkethighlights

Featurearticle

Crudeoilpricemovements

Commoditymarkets

Worldeconomy

Worldoildemand

Worldoilsupply

Productmarketsand refineryoperations

Tankermarket

Oil trade

Stockmovements

Balanceofsupplyanddemand

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OPEC bulletin 12/17–1/18

December

2017

Review of 2017 — outlook for 2018

World economic growth in 2017 has been supported by

strong momentum across all major economies and sec-

tors. In OPEC’s Monthly Oil Market Report

(MOMR)

for

December, growth now stands at 3.7 per cent, up from

an initial forecast at the state of the year of 3.2 per cent.

The healthy momentum is expected to continue in 2018,

with growth forecast at 3.7 per cent.

According to the

MOMR

, the OECD, supported by the

US and the Euro-zone and to some extent Japan, is con-

sidered a vital element of this dynamic, with growth of

2.2 per cent in 2018, only salightly below this year’s 2.3

per cent. Moreover, upside from the envisaged tax-reform

may lead to even higher growth in the US.

In the non-OECD, the

MOMR

states, the growth mo-

mentum in China is forecast to slightly decelerate in 2018

to 6.5 per cent, compared to 6.8 per cent in 2017. India is

likely to rebound from sluggish growth of 6.5 per cent in

2017 to show growth of 7.4 per cent in 2018. Brazil and

Russia are forecast to continue their recovery at growth

of 1.5 per cent and 1.8 per cent in 2018, after 2017 growth

of 0.8 per cent and 1.9 per cent, respectively.

As many economies now expand at or even above

growth potential, the

MOMR

notes “that the upside may

be limited.” Moreover, it adds that “geopolitical develop-

ments and the pace of monetary policy normalisationwill

be aspects that need close monitoring in 2018. Stability

in the oil market also remains a key contributor for global

economic growth.”

From the perspective of world oil demand growth,

the

MOMR

estimates a level of 1.53m b/d in 2017, which

is well above the initial forecast and maintains the con-

sistently healthy growth seen over the last three years.

It states that “OECD Europe contributed most of the

upward revisions, due to solid progress in the industrial

sector in addition to strong transportation demand. In

non-OECD, China oil demand growth has been robust in

2017 as the petrochemical and the transportation sectors

continued to expand at a healthy pace and the overall

economic activities improved from initial expectations.”

For 2018, the main assumptions behind the fore-

cast, according to the

MOMR

, “are firmeconomic growth,

lending support to industrial and construction fuels in

both the OECD and non-OECD.” It expects expansion

in the transporta-

tion sector to pro-

vide the bulk of oil

demand growth,

while growth in

petrochemical de-

mand is projected

to be one of the

fastest-grow-

ing contribu-

tors in the US,

China, South

Korea and the

Middle East. As such,

the

MOMR

says, “world oil demand growth is

estimated at 1.51m b/d in 2018, compared to 1.26m b/d

in the initial forecast.”

In terms of non-OPEC oil supply, the

MOMR

notes

that growth in 2017 performed well above initial market

expectations to now stand at 810,000 b/d. It adds that

higher-than-expected supply growth in the US, Canada

and Kazakhstan have been the key contributors to the

upward revisions, particularly US tight oil, with US oil

output now expected to grow at 610,000 b/d this year.

According to the

MOMR

, themomentumseen this year

is expected to continue in 2018 on the back of increased

investment inUS tight oil and improvedwell efficiency, as

well as higher output from Canada, due to already sanc-

tioned oil sands projects. As a result, the

MOMR

says that

“non-OPEC supply is expected to grow by 990,000 b/d

in 2018.” However, it adds that the forecast is associated

with considerable uncertainties, particularly regarding

US tight oil developments.

Basedon the supply anddemand forecasts, the

MOMR

sees expectations for OPEC crude in 2018 standing at

33.2m b/d, which is higher than the OPEC production

levels seen in 2017. Combined with continued efforts

by OPEC and non-OPEC to support oil market stabil-

ity through the ‘Declaration of Cooperation’, the

MOMR

notes that “this should lead to a further reduction in ex-

cess global inventories, arriving at a balanced market by

late 2018.”

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