What next for oil?

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Via the IEA’s OMR:

In this month’s OMR, we publish our first estimates for global oil demand and non-OPEC supply for 2019. Rapidly rising prices in recent months have raised doubts about the strength of demand growth, and we have modestly downgraded our estimate for 2018. Prices are unlikely to increase as sharply as they did from mid-2017 onwards and thus the dampening effect on demand will be reduced. Demand might also receive support from measures under consideration in some countries, e.g. Argentina, Brazil, India, Indonesia, Russia and Turkey, to help consumers cope with higher prices. When you add the boost to demand from the growing petrochemicals sector, where some projects are coming on stream earlier than previously thought, the result is global oil demand growth for 2019 of 1.4 mb/d, similar to this year’s level. Of course, there are downside risks: these include the possibility of higher prices, a weakening of economic confidence, trade protectionism and a potential further strengthening of the US dollar.

As far as supply is concerned, we have revised upwards our estimate for 2018 non-OPEC production growth to 2 mb/d and in 2019 we will also see bumper growth, albeit slightly reduced, of 1.7 mb/d. The United States shows by far the biggest gain (about 75% of the total across 2018 and 2019), but recently this expansion has not been without stress. The discount for WTI versus Brent has blown out to $10/bbl, amidst signs that takeaway capacity is lagging behind output growth. In this month’s OMR we have updated our analysis of infrastructure first published in Oil 2018We think that in Texas by end-2019 there will be a net 575 kb/d of additional pipeline capacity beyond our earlier number, albeit with most of it coming on line in the second half of the year. In the meantime, capacity will likely remain tight but production will still be able to grow strongly, by 1.3 mb/d this year and 0.9 mb/d in 2019. Our non-OPEC growth for 2019 includes a modest increase from Russia reflecting a possible contribution to compensating for lost production from Iran and Venezuela.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.