An OPEC state of mind

Nov 8, 2016 1:23:35 PM EST

Given the election is dominating much of the sentiment in markets today, and given the timely release of OPEC's World Oil Outlook, today's post digs into some of the longer-term trends emerging in the oil market. Hark, here are six things to consider:

1) OPEC's World Oil Outlook (WOO) is a comprehensive 428-page (!) outlook on the global oil market. Publishing a long-term outlook puts you on a hiding to nothing (you're never gonna be right), but OPEC is quick to highlight the goal of this publication is to promote discussion, and not to predict the future. That said, we can place a bit more weight on some of the more near-term projections in this report.

In terms of demand, the cartel projects it will increase from 93mn bpd last year to 99mn bpd by 2021, reaching 109mn bpd by 2040. Developing nations will lead demand growth (no surprise there), driven by the transportation sector.

The total number of passenger cars are expected to double by 2040, rising to 2.1 billion. Most of this increase comes from developing countries, amid a rising vehicle penetration rate. In contrast, oil demand from the road transportation sector in the OECD is expected to fall by 6.7mn bpd by 2040. 

global passenger fleet.jpg

2) The cartel also projects that U.S. and Canadian crude oil exports will rise to 1mn bpd by 2020, doubling to 2mn bpd by 2035. (n.b., Canada currently exports over 3mn bpd of crude to the U.S. by pipe and water, but has only exported ~30,000 bpd this year through October to other destinations, according to our ClipperData. The U.K. is the leading recipient, followed by Italy, Spain and the Netherlands). 

New Call-to-action

OPEC projects that crude flows to the U.S., Canada, Europe, Japan and Australia will drop by 3mn bpd by 2040. Imports into the Asia Pacific region are seen to rise by nearly 9mn bpd - with 6.5mn bpd of this increase (hark, over 70 percent) coming from the Middle East:
Asia CL imports.jpg

3) The above chart sent me scurrying back into our ClipperData. Our numbers tally up with OPEC; we see imports to the Asia-Pacific region at just a smidge below 20mn bpd last year, but up over 21mn bpd so far in 2016. With global oil demand growth running at ~1.2mn bpd, we can see where most of these extra barrels are going:
imports to Asia ClipperData.jpg

4) In terms of demand growth over the coming years, developing countries are projected to show growth from 41.5mn bpd to 47.9mn bpd by 2021. Nearly half of the 6.4mn bpd increase is from India and China, while OPEC accounts for 1.5mn bpd of demand growth, and 'other Asia' 1mn bpd.

OECD offsets this by falling 0.5mn bpd over the period, meaning annual demand growth should gravitate gradually lower from +1.2mn bpd last year to +0.9mn bpd in 2021. 

global oil demand growth.jpg

5) As for where this growth will come from, the chart below highlights the product breakdown for demand to increase from 93mn bpd to 99.2mn bpd. Transportation fuels - and in developing countries - is driving the lion's share of this shift:  

product demand OPEC.jpg6) Finally, ahead of the OPEC meeting at the end of the month, we have published a market commentary, taking a look at OPEC's real-time flows ahead of the crucial convocation. You can download it for free here.

About the Author

Matt Smith

deciphers and distills what is most relevant across the energy complex into cohesive and pithy knowledge you can use. The belly laugh is a bonus.

Subscribe to Email Updates