After a healthy start to the year, the world economy in 2018 was marked by a rising divergence in growth trends. Within the OECD, the US managed to grow by a much higher rate than other economies, fueled by an extraordinary fiscal stimulus. Additionally, growth trends in the emerging and developing economies have become increasingly diverse, with high growth levels in India and China, while Russia, Brazil and others have managed only minor growth. Moreover, in the second half of the year, global growth trends became more fragile as growth in some major advanced economies slowed further. Also, currency issues along with fiscal challenges continued to have serious implications for some of the G20 economies, namely Argentina, Turkey and South Africa. Nonetheless, the global economic growth forecast for this year stands at a high level of 3.7% in 2018 (Graph 1), but the momentum is forecast to slow to 3.5% in 2019. Rising trade tensions, monetary tightening and geopolitical challenges are among the issues that skew economic risks even further to the downside in 2019. The upside appears limited, but is mainly resulting from a resolution of trade-related issues and the possibility of slower than currently anticipated monetary policy normalization by G4 central banks.

World oil demand in 2018 is projected to grow at a slower rate than during the previous year, albeit at healthy levels. Oil demand growth for 2018 is estimated at 1.50 mb/d, which was revised down by around 150 tb/d from the forecast in July 2018 (Graph 2). In OECD Americas, growth is driven by the significant expansion of petrochemical plants in the US, as well as solid economic activities. In the non-OECD, Other Asia is projected to lead demand growth, sustained by robust oil product consumption in India, Indonesia, Singapore and Thailand. Conversely, demand in the Middle East has weakened in response to economic reforms including subsidy removals, substitution plans and energy efficiency-related polices.

For next year, global oil demand is forecast to increase by around 1.29 mb/d, some 160 tb/d lower than the initial forecast in July 2018, to average 100.1 mb/d, thereby surpassing the historical 100 mb/d threshold on an annual basis (Graph 2). In the OECD region, oil demand is projected to grow by 0.25 mb/d. Consumption in OECD Americas is expected to be firmly in the positive, driven by solid NGL and middle distillate requirements. In the non-OECD region, growth is anticipated to be around 1.04 mb/d, with slightly lower growth in China compared to this year. Other regions, such as Latin America and the Middle East, are expected to see higher growth y-o-y.

This year, non-OPEC oil supply growth outpaced initial market expectations and now stands at 2.50 mb/d, compared to 2.00 mb/d in July 2018 (Graph 2). Higher-than-expected supply growth in the US, Canada and Russia has been the key contributor to the upward revisions, particularly with regard to US tight oil. US oil output is now projected to grow by 2.13 mb/d in 2018. Non-OPEC supply is expected to see continued strong growth in 2019 on the back of increased investment in US tight oil, as well as robust growth expected from new projects in Brazil. Higher output in the UK due to upstream projects will also contribute to next year’s growth. Consequently, non-OPEC supply is estimated to grow by 2.16 mb/d in 2019, an upward revision of around 60 tb/d from initial forecasts in July 2018. The forecast for the next year is subject to considerable uncertainties, particularly with regard to continued improvements in the productivity of US shale, oil transportation bottlenecks in the Permian Basin and Western Canada, and expected projects coming on-stream in other non-OPEC countries.
Based on the above forecasts, demand for OPEC crude in 2019 is expected to stand at 31.4 mb/d, which is lower than the demand levels seen this year. The decision of the 175th Meeting of the OPEC Conference and the 5th OPEC and non-OPEC Ministerial Meeting to adjust overall production by 1.2 mb/d, effective as of January 2019 for an initial period of six months, should contribute to sustainability of market stability.
Source: OPEC