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The Oil Market Outlook in 2011 - Jul 10
Source: OPEC_RP100702 7/15/2010, Location: Europe
Financials and Investment
World economic growth for 2011 is forecast at 3.7%, slightly lower than the 2010 forecast of 3.8%. These numbers reflect some caution and take into account the challenges that lie ahead. The broad and unprecedented governmentled support that started at the end of 2008 successfully helped to soften the depth of the recession and support the nascent recovery. While some positive developments in final consumer demand can be seen, the government-led stimulus is expected to remain the major driver of growth in 2010.
However, this stimulus is expected to taper off in the coming months. With unemployment rates at high levels across the globe and households still constrained in major OECD counties, it remains to be seen whether personal consumption expenditures – which represents the bulk of GDP in developed economies – will be sufficient to provide a major contribution to the recovery.
After growing 2.1% in 2010, OECD is expected to expand by 2.0% in 2011, led by the US at 2.5%, Japan at 1.4% and the Euro-zone at 0.9%. The OECD economies will face the dilemma in 2011 of introducing austerity measures in most of the economies at a time of continued low growth. Developing countries remain the major contributors to global growth. China is expected to expand by 8.8%, following 9.5% in 2010.
The Chinese administration is currently implementing measures to avert overheating in its fast-expanding economy. At the same time, care should be taken to avoid any excessive deceleration of the economy. The pace of growth in India is also expected to slow slightly in 2011 with growth of 7.7%, after achieving 7.8% in 2010. Brazil’s performance has surprised on the upside, benefiting from the improvement in commodities, and is now expected to grow by 5.8% before moderating to 4% next year.
However, the pace of the expansion in export-led emerging economies will partly depend on economic developments in the OECD. Overall, the forecast for 2011 remains subject to substantial uncertainties as shown in the wide range of forecasts by selected major sources.
Turning to the oil market, world oil demand is projected to grow 1.0 mb/d to 86.4 mb/d in 2011. Demand growth will come primarily from non-OECD, mainly China, India, the Middle East and Latin America. On the product side, demand for industrial fuels will be strong as a result of the ongoing economic recovery. Demand for transportation fuels is also forecast to increase. In the US, gasoline demand is assumed to return to its normal growth trend, although dependent on the pace of the recovery, as well as government policies. One factor expected to play an important role in next year’s oil demand is retail oil product price developments which will be impacted by tax policies and subsidies, potentially leading to a moderation in the recovery in oil demand.
Non-OPEC supply is forecast to grow 0.3 mb/d in 2011 to 52.2 mb/d, supported by Brazil, Canada, Azerbaijan, Colombia, and Kazakhstan, while the UK, Norway, and Mexico are expected to experience declines. The outlook for non-OPEC supply shows considerable risks and uncertainties. Major uncertainties include developments in the Gulf of Mexico related to the deepwater moratorium, decline rates across various regions and progress in the new subsalt frontier in Brazil. Moreover, economic and financial uncertainties as well as new challenges to global deepwater production have added to the general uncertainties on the supply side. Separately, OPEC NGLs and nonconventional oils are seen rising a further 0.5 mb/d in 2011, representing a similar increase to last year.
Taken together, the above forecasts for global demand and non-OPEC supply, including OPEC NGLs and nonconventional oil, result in demand for OPEC crude of 28.8 mb/d in 2011. This represents growth of 0.2 mb/d above the current year, the first increase in three years. However, the wide range of forecasts for oil demand and non-OPEC supply across the industry reflects the high level of uncertainty regarding the needs of the market in the coming year.
If the past is a good guide, our initial projections are likely to be revised over the coming months, but by less than other institutions. The overall outlook indicates that the current stock overhang would be more than sufficient to supply the additional volumes needed in 2011. As a result, the oil market is set to remain well-supplied, especially in light of the ongoing increase in crude oil production capacity. In this environment, non-fundamental factors, mainly the behaviour of financial markets, will continue to be the key drivers of oil price volatility.
