Summary:

  • OPEC revised up its oil demand forecasts due to higher economic growth across economies, supply forecasts cut
  • The latest rally seen in oil prices is being supported by the OPEC report
  • September’s Cartel oil output picks up compared to the prior month

The latest OPEC report outlined the rosy outlook for global oil demand as it lifted its 2017 growth forecast by 30 kbpd to 1.5 mbpd compared to the prior release. Higher than estimated growth demand stems from an improvement in economic activities mainly in OECD countries as well as China. In turn, the OPEC’s 2018 growth demand forecast was revised up by 30 kbpd alike to 1.4 mbpd, a higher pick-up in demand is based on better prospects in China and Russia.

As far as a supply side is concerned, the Cartel foresees a pick-up by 0.7 mbpd this year (a cut by 0.1 mbpd in comparison to the prior month). It stems mainly from an expected lower growth supply in non-OPEC countries (0.9 mbpd). It’s worth mentioning that the OPEC took into account effects coming from a possible tax cut in the US. According to their calculations a probable reduction of taxes could result in an increased real economic growth in 2018 (+0.3pp compared to the base scenario).

link do file download linkA tax cut in the United States could be supportive of the US economy. Source: OPEC

Under a scenario when taxes in the US are cut, the global economy is expected to take advantage of it, this is especially true when it comes to the US major trading partners. On the flip side, it could exert pressure on higher interest rates which could result in a capital outflow from the EM economies dialing back a increase in oil demand. The Cartel projects that lower taxes would also cause a rise of the US energy companies’ profitability which in turn would translate into a higher extent of capital investments in the sector. Finally, a lesser burden of taxes could increase a demand for distillates as well.

The OPEC underlines that the capping of corporate deductions for interest payments would be one of the worst change for shale companies. These firms benefit from such deductions, otherwise they would be afflicted which would lead to some issues of the whole sector, on balance, the net effect due to the reforms may be positive for these producers.

link do file download linkOPEC projects higher oil demand mainly in Q1 and Q2 2018. Source: OPEC

link do file download linkThe US is expected to contribute the most to an increased global oil supply. Brazil, Canada, Kazakhstan are also anticipated to add to the oil supply. What’s more, even though Kazakhstan is among countries included in the OPEC/non-OPEC deal, it has bumped up its oil production this year and it intends to continue doing so next year. On the other hand, Mexico should decrease its domestic out-turn. Source: OPEC

link do file download linkGlobal oil growth supply forecasts were slashed further which could be positive for oil prices. Source: OPEC

The Cartel pointed that Russia managed to show full compliance of the deal as opposed to the IEA and EIA data. Moreover, as much as 6 new oil projects are anticipated to be launched in Russia in the nearest future despite production cuts. As a result, the country’s oil output could increase by 180 kbpd.

link do file download linkAccording to OPEC’s calculations Russia adhered to its output cuts. Source: OPEC

On the other hand, the Cartel increased its own oil output in the past month where Nigeria and Libya were among the largest accomplices. In turn, continued production issues are seen in Venezuela mainly owing to geopolitical problems which could lead to further declines of output even towards 1.5-1.7 mbpd.

link do file download linkOPEC increased its oil output in September chiefly on the back of countries being out of the deal. Source: OPEC

In terms of inventories, the Cartel reported that OECD stocks declined 24.7 mbpd in August to 2996 mbpd which is still 171 mbpd above the 5 year average (the target for the OPEC). Distillates stockpiles climbed markedly but it was no such an important move. On top of that, preliminary data suggests that US oil stocks could have fallen in September by 16 mbpd. As for now, they are 62 mbpd lower compared to the same period last year, however it’s still 104 mbpd above the 5 year average.

link do file download linkUS oil stocks continue shrinking in line with expectations. Source: OPEC

The Cartel’s report indicated that we could have had a deficit in Q3 of this year equal 1.07 mbpd. Taking account of the current OPEC’s projections, the Organization may have abundant space for its potential output increase in order to get the balanced market in the last quarter of 2017.

link do file download linkThe data illustrated by the OPEC could bode well for oil prices. Source: OPEC

link do file download linkWTI oil prices are rebounding from its crucial support area at around a 50% retracement and a lower boundary of a channel. However, we’ve already approached a pivotal resistance zone which could act not in favor of bulls. A 61.8% retracement could constitute a major support for prices. Source: xStation5