Oil prices rise but supply concerns remain

The IEA and OPEC have both increased their forecasts for global oil demand in 2018, but US production could upset the balance.

Oil prices have continued to rise this week, moving back above US$49/b (WTI), their highest level since early August.

 

The Paris-based International Energy Agency (IEA) has increased its forecast for 2018 global oil demand growth by 100,000 b/d to 1.6 million b/d, saying that demand growth is already proving stronger than expected, particularly in the US and Europe. The IEA also believes that developed economy oil stock piles could fall below current levels very soon.

 

The IEA also reckons that OPEC members’ compliance with output restrictions has improved, with all 10 of them meeting agreed output levels in August. Nigeria and Libya are exempt at present from production restrictions, however, and it is unclear what will happen when the current production restriction agreement ends in March 2018. 


“OPEC itself is also forecasting higher global demand for oil in 2018, saying that it will rise by 1.35 million b/d next year, 70,000 b/d more than previously predicted.”

 

Nonetheless, the supply/demand picture could be revised, in particular in the US. The US Energy Information Administration (EIA) data showed a 5.9 million barrel increase in US crude stocks last week, in part due to a rebound in US oil production after Hurricane Harvey. 

 

US production also rose to average 9.4 million b/d last week from 8.8 million b/d in the previous week, due to increases in the lower 48 states. The possibility of higher US production and remaining doubts around the future of the OPEC production restriction agreement (and the linked agreement with some non-OPEC producers) keeps us cautious on oil prices over the longer-term. We forecast US$50/b (WTI) at end-June 2018.


US oil production in 2017

Source: Bloomberg Finance L P, Deutsche Bank Wealth Management. Data as of September 13, 2017.

Markus Müller
Global Head
CIO Office
Source: CIO Bulletin, September 15, 2017