Global oil outlook 2016-2018 Supply, demand and prices

JOHN KEMP REUTERS

June 2016

(John Kemp is a Reuters market analyst. The views expressed are his own)

Real oil price quadrupled 2002-14, then fell 70% 2014-16

Real oil price averaged >$100 per bbl for 2011-H1 2014

Oil consumption peaked in OECD, growth relied on EMs

Oil supply (mostly non-OPEC) responded to higher price

U.S. shale output increased 1-2% per month 2012-2014

U.S. output up from 5mb/d (2008) to 9.7mb/d (Apr 2015)

Decade of high and rising oil prices 2004-2014

Real price of crude ≥ $100 for 3.5 years 2011-2014

Oil supply accelerating

Oil demand decelerating

Emerging imbalance

Lower prices required to realign supply and demand

“If something cannot go on forever, it will stop” ––

Stein’s Law

Herbert Stein, Chairman of the Council of Economic Advisers

(1972-74)

What I Think: Essays on Economics, Politics and Life (1998)

Adjusting oil supply involves three groups of producers

OPEC

Core Gulf

Iran (Iraq?)

African/Latin American members

U.S. shale

Core plays and counties

Marginal plays and counties

Non-OPEC non-shale (NONS)

North Sea

Deepwater

Arctic

Megaprojects

Frontier

Non-OPEC supply now falling at fastest rate for >20 years

OECD oil consumption returns to growth led by United States

Non-OECD sees growth in some large EMs (China, India, Mexico)

Offsetting slowdown in oil demand from oil and commodity

exporting countries (Brazil, Gulf monarchies)

Oil consumption growing > 1.5mb/d each year 2015-2018

Cheap gasoline has unleashed driving boom in the U.S.

India is also experiencing a boom in gasoline demand

India gasoline consumption growing at 10% per year

Mexico also seeing fast growth in gasoline consumption

Brazil’s fuel consumption is falling with recession

Low oil prices discouraging investment in exploration and production

Non-OPEC oil supply falling at fastest rate for more than 20 years

Oil consumption increasing at around 1.5mb/d per year 2015-2017

Emerging imbalance

Supply disruptions (Canada, Nigeria, Iraq, Venezuela) accelerating

adjustment

Higher prices required to realign supply and demand

Production outages >3.5 mb/d accelerate adjustment

“If something cannot go on forever, it will stop” ––

Stein’s Law

Herbert Stein, Chairman of the Council of Economic Advisers

(1972-74)

What I Think: Essays on Economics, Politics and Life (1998)

Hedge funds amass near-record bullish position on oil

Forward oil prices anticipate tighter market in 2017/18

Oil prices expected to recover gradually to $70 by 2020