OPEC Boosts Oil Demand Estimates, Admits Oil Prices Can't Rise Above $55

Tyler Durden's picture

In its latest OPEC Monthly Oil Market Report (October) the oil cartel has increased its oil demand estimates for 2017, 2018 on strengthening world economy, and weaker outlook for supplies from its rivals.

Specifically, OPEC forecasts that based on the current global oil supply/demand balance, demand for OPEC crude in 2017 is estimated at 32.8 mb/d, around 0.6 mb/d higher than in 2016. Similarly, OPEC crude in 2018 is projected at 33.1 mb/d, 350k b/d higher than September production, and ~200k b/d higher than the group estimated last month.  Global oil demand seen rising +1.38m b/d, or 1.4% in 2018 to 98.19m b/d

Meanwhile, OPEC claims that oil inventories in developed nations continued to decline, -24.7m bbl to 2.996b bbl in August, curbing surplus relative to a 5-year average to 171m bbl.

Here are the key highlights from the report:

Crude Oil Price Movements

 

The OPEC Reference Basket rose to $53.44/b in September, its highest value since July 2015. Crude futures prices also saw gains, with ICE Brent averaging above the $55/b, supported by increasing evidence that the oil market is heading toward rebalancing. Geopolitical tensions and lower distillates stocks also pushed prices higher. ICE Brent averaged $55.51/b in September, a gain of $3.64, while NYMEX WTI increased $1.82 to average $49.88/b. Hedge funds raised net long position in ICE Brent and NYMEX WTI futures and options by almost 200,000 contracts. At the end of the month, the Brent crude contract curve had flipped into backwardation through December 2021. The sweet/sour spread widened significantly in Asia and Europe.

 

World Economy

 

Growth in the world economy continues to improve, with the forecast for 2017 revised up to 3.6% from 3.5% in last month’s report. Similarly, the 2018 forecast has been adjusted higher to 3.5% from 3.4%. The improving momentum is visible in all economies, particularly the OECD, which is seen growing by 2.2% in 2017 and by an upwardly revised 2.1% in 2018. US growth in 2018 has been revised up to 2.3% and the EU to 1.9% for the same year. Russia has also seen an upward revision for 2018 to now stand at 1.6%, compared to 1.4% in the previous report. Growth expectations for India and China were left unchanged for both 2017 and 2018.

 

World Oil Demand

 

World oil demand growth in 2017 is now expected to increase by 1.5 mb/d, representing an upward revision of around 30 tb/d from last previous report, mainly reflecting recent data showing an improvement in economic activities. Positive revisions were primarily a result of higher-than-expected oil demand from the OECD region and China. In 2018, world oil demand is anticipated to grow by 1.4 mb/d, following an upward adjustment of 30 tb/d over the previous report, due to the improving economic outlook in the world economy, particularly China and Russia.

 

World Oil Supply

 

Non-OPEC oil supply is expected to grow by 0.7 mb/d in 2017, following a downward revision of 0.1 m/bd from the previous report. In 2018, the growth in non-OPEC oil supply saw a downward revision of 60 tb/d to stand at 0.9 mb/d. OPEC NGLs and non-conventional liquids production are seen averaging 6.5 mb/d in 2018, representing an increase of 0.2 mb/d, broadly in line with growth in the current year. In September, OPEC crude oil production increased by 88 tb/d, according to secondary sources, to average 32.75 mb/d.

Separately, according to secondary source data, OPEC output in September rose +88.5k b/d to 32.748m b/d; the increase was mostly driven by higher output from Libya +54k b/d, Nigeria +51k, who are exempt from cuts, as well as gains in Iraq production. Saudi Arabian output was unchanged at 9.975m b/d, lowest since May, although based on self-reported data, Saudi production rose by 21.7k b/d to 9.973m b/d.

Additionally, OPEC raised its 2018 oil-demand projections by ~100k b/d to 98.2m b/d, while estimates for non- OPEC supply were cut by 100k b/d this year, -200k b/d in 2018; weaker outlook for next year on lower forecasts for Russia. In summary, OPEC sees that oil market remaining supported in coming months on expectations that supplies of middle distillates like heating oil "will remain relatively tight this winter."

Perhaps the most interesting tidbit in the report, however, was OPEC's admission (on page 45) that there is little upside to prices from here as a result of oil producers ramping up above $50, to wit:

Non-OPEC production is expected to increase next year, primarily as a result of projects that were approved before the 2014 price collapse. When the WTI price remained below $50/b for a longer period, US production growth slowed as the oil rig count declined. Lower prices are beginning to weigh on US shale oil activity as concerns mount that aggressive development could lead to output declines. Oil prices are expected to remain at $50-55/b in the next year. A rise above that level would encourage US oil producers to expand their drilling activities, otherwise the lower prices could lead to a reduction in their Capex.

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NickyGall's picture

All great until the overdue global recession hits.

happyfrog's picture

Agreed. For the last two years OPEC has continually said how demand would improve and the market would rebalance itself.  Yet here we are again, heading into winter with the massive crude glut that never goes away ...

fx's picture

Shale will reach its peak production within the next 5-7 years and then it's all downhill again for US production. There are darn steep decline rates in them shale wells.

Not all is well in shale county - just sain'...

post turtle saver's picture

whistling through the graveyard... US shale has not yet begun to produce at the levels it's capable of...

OPEC is in for a surprise... a rude, painful surprise...

Last of the Middle Class's picture

Canary in the coal mine is what Oil is. Grab your piece of the US economy while your politicians are selling it cheap. An income stream forever and by God It's the law once it's passed. Obamacare is a prime example of rank corruption and graft destroying 18% of the economy in one swoop and you can't get a politician in the US to talk about the advantages of a free market that served us so well for so long until this boondoggle. Imagine that.

Richard Chesler's picture

Wishful thinking at best.

illuminatus's picture

 

So that probably means crude will trade above $100. within two years!

Arnold's picture

Went to the financial adviser yesterday.
She hates me, but loves my wife, so we get fair advice and a decent time frame of re allocating assets.

Wife wanted to do some tax thingys two years out.
The adviser and I agreed , it was too far out.
I used to do regular six month look ahead in our projects.
I had about a 50% accuracy, but I did not shovel pablum in the reports either.

Arnold's picture

Bonus:
Six Month look ahead.

I found plenty of pictures of festering wounds, but they even turned my stomach.
So, no pic.

FreeShitter's picture

Gas is what, at 80.00/bbl prices? Oil, insurance, and voting are just about the 3 biggest fucking scams that plague this planet.

Arnold's picture

Yeah, Diesel hit three bucks a gallon in western PA.

Not all supply related, our increase was mainly Wolf related.

Tugg McFancy's picture

What's the admission? I would have thought that was a self evident statement of little consequence.

Anyway, no one really knows what US production is. It's an estimate by a government agency that's allready been called out as a crock of shit by at least 250k/bpd. You're unlikely to get a proper review because being government assholes the last thing they'll do is admit they're wrong.

Texas completions haven't been this low in 6 years, what does that tell you?

post turtle saver's picture

Texas completions haven't been this low in 6 years? since when does that have fuck all to do with anything, that shit runs on investment cycles and is supposed to oscillate... if anything, it tells me the next round of money coming in _today_ is going to push that number _up_ in 6 years...

EIA is a "crock of shit"? for real? compared to the absolute B.S. that OPEC kicks out in their reports? you couldn't get a true number out of OPEC if you threatened to pull their eye teeth out... the EIA numbers may not be 100% accurate but since when are _any_ numbers associated with the oil industry expected to be? reserve and production numbers are constant moving targets, it's just an _estimate_ for cryin' out loud...

"... no one really knows what US production is." - they may not truly know but the damn estimates are better than most... I see some dumb shit posted on ZH about the oil industry and US shale production in particular and yours is right there in the mix... don't quit your day job

Relayer74's picture

Crammed this all through the BS filter and got less than 1% useable output. SNAFU

Grandad Grumps's picture

Can't? Because?

Maybe it is because of "Peak Oil? ROFLMAO!!

Or Global Warming ... STOP! You are cracking me up!!!

Or, They hate oil because of its FREEDOM!!!! Oh, my, Oh, my ... chuckle.

hola dos cola's picture

Ain't that swell?

Nothing to go on in relation to price discovery.

Oil will be sailing from fake EIA numbers to fake, bought and politisized headlines just to suit the banks and the tradinghouses.

The Saudi's figured they could make more in the manipulated market, where they have the upper $$$$$- hand, than selling real oil.

P.S. No wonder online gambling is illegal. Wallstreet's monopoly is well protected.

post turtle saver's picture

ok, that's the second "fake EIA numbers" assertion I've seen in this thread... so that's going to be the line of attack on US shale production it seems, "wah wah, those numbers are fake, boo hoo, US shale doesn't control the price lever for oil, etc."

fucking fifth column ankle biters, the lot of you... you're full of shit... put up or shut up on EIA's numbers being fake... fucking *prove it* or stfu, those numbers are audited constantly so I want to see what crazy shit all y'all come up with to back that claim up... 

hola dos cola's picture

You seem to be an intelligent person, so you figure it out yourself.

Spoiler: If they lift the anchor, it's imported. If the bridge switches the AIS of, it's exported. The phone call tells them to do each before or after the hour in order to be included in this week's FAKE NUMBERS or next week's.