Oil: Favourable Demand-Supply Outlook


Overall demand-supply situation should be favourable in 2018, with global economic growth trends looking promising, inventory levels down, and OPEC production levels relatively stable.
Suvro Sarkar10 Apr 2018
Photo credit: AFP Photo


Brent crude prices were off to a very strong start in January 2018, reaching highs of slightly more than USD70 a barrel (bbl), before a temporary global equity market slide and the subsequent flight from risky assets resulted in renewed volatility in the system, and brought prices down. The correction came faster and steeper than we had expected. Since then, however, prices have stabilised around the USD65/bbl level, in line with our expectation of Brent to average USD60-65/bbl this year. This represents a healthy 15-20% improvement over 2017 average of USD55/bbl.

Support from falling inventory levels have run out for the time being, with US crude oil inventories up 10m barrels for over the last three reporting weeks, after a 10-week streak of declines in inventory levels totalling almost 50m barrels during the recent winter months. Rise in inventory levels were mainly driven by a rebound in US oil production from shale regions, and, to a smaller extent, a seasonal slowdown in refinery runs as maintenance season draws near. Despite the overall expected oil market rebalancing, the above factors will continue to have a moderating effect on oil prices in 2018/19.

Overall demand-supply situation should be favourable in 2018, with global economic growth trends looking promising, inventory levels down, and the Organization of the Petroleum Exporting Countries (OPEC) production levels relatively stable. The market will continue to rebalance, given that we expect global oil demand growth in 2018 to be robust at around 1.5m barrels per day (mmbpd), while supply growth should be around 1.0mmbpd.

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