In its latest ‘Short-Term Energy Outlook’ (STEO), the US Energy Information Administration (EIA) notes that crude oil prices traded at the highest levels in more than two years in November and early December 2017.
On 30 November 2017, the Organization of the Petroleum Exporting Countries (OPEC) announced an extension of the crude oil supply reduction agreement through the end of 2018. This was broadly in line with market expectations in the days leading up to the meeting. The non-OPEC countries that agreed to crude oil production cuts in 2017 also agreed to continue limiting output through the end of next year. Saudi Arabia and Russia will co-chair a monitoring committee designed to assess the group's adherence to the production targets. The group plans to review production levels at the June 2018 meeting depending on market conditions at that time.
The EIA estimates OPEC crude oil production averaged 32.5 million bpd in 2017, a 0.2 million bpd decrease from 2016 levels, and forecasts that OPEC crude oil production will average 32.7 million bpd in 2018.
An important metric for identifying oil market balance is the level of commercial liquids inventories compared with their five-year average for countries in the Organization for Economic Cooperation and Development (OECD). Since reaching a record high of almost 3.09 billion bbls at the end of July 2016, total OECD liquid fuels inventories have fallen by 137 million bbls to 2.95 billion bbls at the end of November 2017. Over the same period, the surplus to the five-year average has declined by 210 million bbls, ending November at an estimated 174 million bbls. Going forward, the five-year average will include a higher proportion of data points from 2015 - 2017, which were years of high inventory levels, resulting in higher five-year average stock levels for comparison. The OECD five-year average inventory level for May 2018 will be 2.8 billion bbls, 80 million bbls higher than the five-year average for December 2017. Although EIA forecasts OECD inventories to increase by 51 million bbls from December 2017 through May 2018, the level of OECD inventories relative to the five-year average is expected to decrease by 29 million bbls because of the increase in the five-year average.
Despite the extension of the OPEC agreement, the EIA forecasts higher output from non-OPEC countries to contribute to growth in total liquid fuels supply in 2018. The non-OPEC outlook is 0.1 million bpd higher than the EIA's November STEO, averaging 60.3 million bpd in 2018, which would be 1.7 million bpd higher than 2017 levels. This growth, together with the forecast 0.3 million bpd growth in OPEC crude oil production and another 0.1 million bpd increase in OPEC non-crude liquids production, results in forecast total global liquids production growth of 2 million bpd in 2018.
The EIA expects that crude oil price increases in late 2017 will contribute to US crude oil production growing to more than 10 million bpd by mid-2018. Overall, US crude oil production is forecast to increase by an average of 0.8 million bpd in 2018. Canada, Brazil, Norway, the UK, and Kazakhstan are forecast to add a combined 0.7 million bpd of liquids production in 2018.
Despite higher oil prices, the EIA expects global liquid fuels demand to increase by more than 1.6 million bpd in 2018, up from growth of 1.4 million bpd in 2017. Demand growth is not forecast to keep pace with supply growth, however, resulting in global liquids inventories increasing modestly in 2018.
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