- Our forecast for global oil demand growth for 2018 is unchanged from last month's report at 1.5 mb/d. OECD demand in 1Q18 was revised up by 315 kb/d, partly due to cold weather in the US and the start-up of a petrochemical project. There are offsetting reductions to growth in 2Q and 3Q.
- Non-OECD demand in 1Q18, by contrast, has been revised down by 260 kb/d due to weak Chinese data. India's early 2018 growth is strong at 380 kb/d y-o-y in the first two months.
- Global oil supply eased by 120 kb/d in March, to 97.8 mb/d, after OPEC and non-OPEC producers deepened their cuts to 2.4 mb/d. Output was nevertheless 1.4 mb/d higher than a year ago mainly due to higher US production. Non-OPEC supply is set to grow by 1.8 mb/d in 2018.
- OPEC crude production fell by 200 kb/d in March, to 31.83 mb/d, on further declines in Venezuela and lower output in Africa. Compliance with the output deal reached 163%. The call on OPEC crude and stocks will hover around 32.5 mb/d for the rest of this year.
- OECD commercial stocks declined by 26 mb to 2 841 mb and were just 30 mb above the five-year average at end February. The average could be reached by May, on the assumption of tight balances in 2Q18. Product stocks are already in deficit.
- ICE Brent futures averaged $66.72/bbl in March and in recent days have risen above $70/bbl to levels not seen since December 2014. Tension in the Middle East is a key factor alongside tighter compliance with the OPEC/non OPEC output deal.
- After 1Q18's peak refinery maintenance in Europe and the US, global throughput will see a seasonal ramp-up in 2Q18. From March to July, runs will increase by 3.1 mb/d, but supply of refined products will lag behind demand growth.
Political uncertainty in the Middle East has returned to the fore in recent days. As we write, uncertainty about the next steps in Syria and Yemen have helped propel the price of Brent crude oil back above $70/bbl. It remains to be seen if recently elevated prices are sustained and if so what are the implications for the market demand and supply dynamics.
In the meantime, our overall view of global demand and supply growth in 2018 is unchanged from last month. For demand, early in 2018 stronger growth in the US was partially offset by weaker growth in China. India has seen a strong start to the year. Globally, we expect oil demand to grow by 1.5 mb/d in 2018. However, there is an element of risk to this outlook from the current tension on trade tariffs between China and the US, and we look at this issue in the demand section of this Report.
For supply, our outlook for non-OPEC growth remains unchanged at 1.8 mb/d. Data for US production show that in January output fell by a modest 24 kb/d, much in line with our forecast with adverse weather playing a part. We retain our view that US crude production in 2018 will increase by 1.3 mb/d versus last year. However, there is concern about bottlenecks in takeaway capacity that have seen recent discounts for WTI Midland versus Houston widen to a record at nearly $9/bbl. This issue applies in Canada as well as in the US.
As far as the OPEC/non-OPEC output cuts are concerned, some countries party to the 2016 Vienna agreement, have, for different reasons, seen production fall by more than they promised. These extra cutbacks total over 800 kb/d. To all intents and purposes, more than a second Saudi Arabia has been added to the output agreement. The overall state of the cuts in March shows OPEC's compliance rate at 163% with its non-OPEC partners achieving a rate of 90%. With just under half of global oil supply subject to restraint and oil demand growing steadily, the impact on stocks has been substantial. The text of the Vienna agreement notes that OECD and non-OECD stocks were above the five-year average and states that they should fall to "normal" levels. Normal is assumed to mean, although it does not explicitly say so, the five-year average. There is less clarity with regard to non-OECD stocks, so five-year average OECD stocks have become the de facto target to measure success of the output cuts.
Since May last year they have fallen constantly the average and new data for February show a larger than usual fall in volume terms with stocks now only 30 mb above the five-year level, and product stocks actually below it. Our balances show that if OPEC production were constant this year, and if our outlooks for non-OPEC production and oil demand remain unchanged, in 2Q18-4Q18 global stocks could draw by about 0.6 mb/d. With markets expected to tighten, it is possible that when we publish OECD stocks data in the next month or two they will have reached or even fallen below the five-year average target. It is not for us to declare on behalf of the Vienna agreement countries that it is "mission accomplished", but if our outlook is accurate, it certainly looks very much like it.