Oil Market Outlook for 2014 - Jul 13

While the softer-than-expected recovery in the global economy this year continues to impact the oil market, the outlook for next year expects some improvement. The initial forecast for global economic growth in 2014 stands at 3.5%, compared to the revised forecast of 3.0% in 2013.

The main underlying assumption is that of a recovery in the OECD, which is expected to grow by 1.8% next year, after 1.2% growth this year. Expected higher growth in the US and a recovery in the Euro-zone are the main drivers behind the forecast. Both should benefit from acceleration in their underlying economies and from less fiscal contraction. Japan’s economy should see continued government efforts to support growth, although with some negative impact from next year’s rise in the consumption tax.

Emerging economies continue to expand at levels below the high rates seen in past years. China’s growth is expected to remain at 7.7% in 2014, in line with the revised estimated figure for this year, due to a decline in total investments, offset to some degree by rising net exports. India is forecast to benefit from improving domestic demand and rising exports, leading to a growth forecast of 6.0%, up from the downwardly-revised 5.6% figure for 2013.

Global growth will remain uneven and the continued influence of monetary policies of central banks will need to be carefully monitored. Reduced monetary stimulus in some developed economies as well as developments in China’s financial sector might have an impact on growth next year. Fiscal consolidation in the US and the Euro-zone could also have a larger-than-expected negative impact. At the same time, these two economies could provide some upside to next year’s growth, particularly if better-targeted budget cuts and easing austerity measures offer greater certainty for investors, potentially leading to higher growth.

World oil demand in 2014 is projected to grow at a higher rate than this year, partially on the back of an improvement in global economic growth. Global demand is projected to increase by 1.0 mb/d to average 90.7 mb/d, representing around 0.2 mb/d higher growth than in the current year. This is also the highest growth since 2010 and broadly in line with the historical average seen over the last 10 years. Non-OECD countries are projected to continue to lead oil demand growth with 1.2 mb/d, while OECD economies are expected to remain in decline mode, with a contraction of 0.2 mb/d, or only half the rate expected for this year. OECD Americas’ oil demand is projected to see positive growth of around 0.1 mb/d. For oil products, diesel is seen contributing the largest growth share in 2014 on the back of higher demand in the transportation and industrial sectors. However, next year’s forecast for world oil demand is subject to uncertainties linked closely to the pace of the recovery in some major economies, particularly the US and Euro-zone, and GDP growth in China. In addition, oil demand growth in 2014 could be capped by the implementation of policies targeting energy efficiency in transportation, as well as subsidies in some countries.

Non-OPEC supply is expected to grow by 1.1 mb/d in 2014 to average 55.1 mb/d, slightly higher than this year’s forecast increase of 1.0 mb/d. Among non-OPEC supply, OECD Americas is expected to see the highest growth – supported by tight oil and oil sand developments in the US and Canada – followed by Latin America and the FSU. A high level of risk is associated with the 2014 non-OPEC supply forecast, mainly due to geopolitical and environmental issues, as well as production decline rates, price developments, weather conditions, unplanned shutdowns, and the ability of operators to bring on new volumes as planned. These risk factors could impact supply projections in either direction. OPEC NGLs and non-conventional oils are expected to increase by 0.1 mb/d to average 6.0 mb/d in 2014, following 0.2 mb/d growth this year.

Based on the above forecasts, incremental oil demand in 2014 will be less than the expected increase in non-OPEC supply and OPEC NGLs. As a result, the demand for OPEC crude in 2014 is projected to stand at 29.6 mb/d, representing a decline of around 0.3 mb/d following an expected drop of 0.4 mb/d this year. This would imply a further build in global crude inventories, which currently stand at high levels.