OPEC said Monday world oil demand would grow faster than expected in 2018 because of a healthy world economy, helping the producer group’s effort to remove a supply glut by cutting output.
But the global market will return to balance near the end of this year, no earlier than previously thought, as higher prices encourage the U.S. and other non-member producers to pump more, OPEC said, in its monthly report.
World oil demand will rise by 1.59 million barrels per day (MMBPD) this year, an increase of 60,000 BPD from last month’s projection, OPEC said.
“Recently, healthy and steady economic development in major global oil demand centers was the key driver behind strong oil demand growth,” OPEC said in the report. “This close linkage between economic growth and oil demand is foreseen to continue, at least for the short term.”
Balancing the higher demand forecast, OPEC said the U.S. and other non-OPEC producers would boost supply by 1.4 MMBPD this year, up 250,000 BPD from January and the third consecutive increase from 870,000 BPD in November.
The U.S. accounts for more than half of that upward revision. OPEC raised its 2018 U.S. supply growth forecast by 150,000 BPD.
“The steady oil price recovery since summer 2017, and renewed interest in growth opportunities have led to oil majors catching up in terms of exploration activity this year, both in the shale industry and offshore deep water,” OPEC said, referring to the U.S. outlook.
World oil supply in January 2018 increased by 0.35 MMBPD month-over-month, to average 97.67 MMBPD, representing an increase of 1.75 MMBPD year-over-year, Kallanish Energy learns.
Preliminary non-OPEC oil supply in January, including OPEC natural gas liquids, was up 0.36 MMBPD month-over-month, and rose by 1.63 MMBPD year-over-year, to average 65.36 MMBPD.
For 2018, following a new forecast for higher production in the U.S., Mexico, UK, Brazil, China and minor downward revisions in Norway, Malaysia and Congo, non-OPEC supply was revised up by 0.32 MMBPD, representing year-over-year growth of 1.40 MMBPD, with total supply at 59.26 MMBPD.
OPEC’s assessment of when the market would rebalance is the same as its previous projection, despite the outlook for higher demand, falling inventories and strong compliance with the supply-cutting deal.
OPEC’s stated goal, through a deal starting a year ago to cut output with Russia and other outside producers by 1.8 MMBPD, is to reduce oil inventories in developed economies to the five-year average. They have extended the pact until the end of 2018.
In a further sign of progress, OPEC said oil inventories in those economies declined by 22.9 MMBbl in December, to 2.89 BBbl, 109 MMBbl above the five-year average.
Should OPEC keep pumping at January’s level and other things remain equal, the market could move into a deficit of about 560,000 BPD, suggesting inventories will be drawn down further.