OPEC Expects an Equilibrium in the Global Oil Demand-Supply Equation

Published on 17 Mar, 2017

Although oil prices remain volatile, the anticipation of improving global economic climes coupled with a 0.6 mn bpd cut in production by non-OPEC oil-producing countries could cushion oil prices in 2017.

Brent oil prices climbed to USD51.7/bbl (March 14, 2017), recovering by 16.3% from its November levels. This improvement can be attributed to the OPEC decision to cut production by 1.2 mn barrels per day (bpd) for six months, starting January 2017 (reducing total output to 32.5 mn bpd).  

Exhibit 1: Oil price movementBrent Crude Oil Prices

Based on the OPEC monthly report released on March 14, 2017, the organization’s crude oil production has been constantly declining over the past three months. In February 2017, OPEC’s oil production declined by 140,000 bpd MoM to 31.96 mn bpd. Key countries such as Saudi Arabia, Iraq, UAE, and Angola have reduced production, while Nigeria posted the most increase in crude oil output. 

OPEC Production (tb/d)

Country

              Dec-16

             Jan-17

             Feb-17

                MoM changes (%)

Gabon

                  209

                  201

                  194

                      (3.5)

Libya

                  610

                  680

                  669

                      (1.6)

Iraq

               4,642

               4,476

               4,414

                      (1.4)

UAE

               3,090

               2,962

               2,925

                      (1.2)

Angola

               1,674

               1,659

               1,641

                      (1.1)

Ecuador

                  544

                  531

                  526

                      (0.9)

Venezuela

               2,034

               2,003

               1,987

                      (0.8)

Saudi Arabia

             10,443

               9,865

               9,797

                      (0.7)

Kuwait

               2,859

               2,718

               2,709

                      (0.3)

Qatar

                  641

                  623

                  622

                      (0.2)

Algeria

               1,087

               1,053

               1,053

                       0.0

Iran, I.R.

               3,725

               3,778

               3,814

                       1.0

Nigeria

               1,474

               1,550

               1,608

                       3.7

Total OPEC

             33,029

             32,097

             31,958

                      (0.4)

Source: Bloomberg , Aranca Research

OPEC Estimates World Crude Demand to Improve in 2017

OPEC expects the worldwide demand for oil to increase by 1.26 mn bpd to 96.3 mn bpd in 2017, driven by economic improvement in India, China, and OECD America. OPEC also revised its 2017 world oil demand forecast by 70,000 bpd.

Exhibit 2: World oil demand to improve while OPEC continues to support oil productionImproving Global Oil Demand

OPEC, in its monthly report, revised its crude demand estimates by 0.2 mn bpd to 32.4 mn bpd for 2017, a 2.3% YoY increase. The organization estimates that non-OPEC countries would fulfil about 60% of global oil demand, while the remaining 40% would be met by OPEC members. In 2016, worldwide oil demand stood at 93.7 mn bbl, while total global supply was 95.5 mn bbl, of which non-OPEC countries supplied about 58 mn bpd while OPEC members contributed the remaining 37.5 mn bpd. Although there was higher supply during 2016, OPEC anticipates a balance in the oil supply-demand dynamics in 2017.

OPEC expects the oil market to achieve a relative balance in 2017 with cuts in oil production and a general global economic resurgence. However, any further increase in oil prices or an inability to maintain current levels remain key concerns, as higher oil prices would encourage shale producers to restart operations, potentially straining oil prices further. 





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