Throughout the first half of this year, ongoing global trade tensions have escalated, threatening to spill over, and geo-political risks remained in many key regions. This has resulted in a slowdown in global economic activities, and weaker growth in global oil demand, both compared to a year earlier. Meanwhile, non-OPEC supply continues to increase at a high pace, while the voluntary production adjustments as per the Declaration of Cooperation (DoC) have again risen to record-high conformity levels.

Since the beginning of the year, offsetting trends in major economies have stabilised global economic growth at the current 2019 forecast of 3.2%, compared to 3.6% estimated for 2018. Despite recent trade-related developments, the 1Q19 growth rate was better than initially expected for major OECD economies and China. Meanwhile, other economies, such as Brazil, Russia and India, have underperformed. On a yearly basis, world business and consumer sentiments have fallen, but yet remained at healthy levels. However, recent escalations in trade disputes are expected to lead to lower economic growth rates, despite the counterbalancing efforts in affected economies. Several emerging and developing economies continue to face challenges, including high debt levels. Moreover, Brexit, fiscal issues in some EU Member Countries, Japan’s slowdown, and the fading impact of US fiscal stimulus pose additional risks

Global oil demand growth is projected to improve seasonally, from the sluggish performance seen in 1H19, with growth in 2H19 forecast at 1.2 mb/d y-o-y. The OECD region is forecast to increase by 0.2 mb/d y-o-y in 2H19, on the back of growth in OECD Americas, driven by solid light distillate demand. In contrast, OECD Europe is forecast to contract due to slower economic momentum, while OECD Asia Pacific will decline on lower petrochemical feedstock demand. In the non-OECD region, oil demand is projected to increase by 1.0 mb/d y-o-y in 2H19 supported mainly by Other Asia, particularly India. Oil demand in China is expected to continue growing despite economic concerns and sharply lower vehicle sales. Growth in transportation fuels, particularly aviation fuels, as well as in petrochemical feedstock should outweigh declines elsewhere in 2H19 (Graph 2). However, significant downside risks from escalating trade disputes spilling over to global demand growth remain.

Non-OPEC oil supply in 2H19 is forecast to increase by 1.8 mb/d, compared to 1H19 and to increase by 2.1 mb/d y-o-y, which is less than growth seen over the same period a year earlier. Indeed, the non-OPEC supply growth slowed slightly in 1H19 due to take-away capacity restrictions in the Permian Basin in the US, mandatory production limitations in Canada, and heavy maintenance operations elsewhere. For 2H19, non-OPEC supply growth is anticipated to show further upside potential, with higher production expected in the US, as well as production ramp-ups in Brazil and possibly the start-up of Norway’s Johan Sverdrup field in the North Sea, leading to a growth forecast of 2.14 mb/d for 2019. In summary, the observed slowdown in the global economy in 1H19 will further be challenged in 2H19, mainly by mounting trade disputes, with the impact on oil demand growth remaining uncertain. While growth in non-OPEC supply continues, the extent of additional production in key regions in 2H19 will mainly depend on volumes of start- and ramp-ups. The upcoming OPEC and non-OPEC Ministerial Meetings will carefully consider these developments, in order to ensure continued market stability
Source: OPEC