Oil demand to rise in 2017 on output deal, says OPEC

The demand for crude oil is expected to rise by 1.16 million barrels per day (bpd) to average 95.6 million bpd this year, the Organization of Petroleum Exporting Countries (OPEC) said in its latest monthly report.

The group, however, noted that changes in monetary policies, especially the U.S. Federal Reserve’s stance on interest rates will have an impact on global oil demand.

“Rising U.S. interest rates could result in increased capital outflows from emerging and some other economies, and hence lower economic activity, especially in emerging countries, limiting oil demand growth,” the report said.

“Additionally, the expectation of higher-yielding U.S. dollar-denominated investments may support the strengthening of the dollar versus major currency counterparts, which usually weighs on oil prices.”

The organization underlined its expectations for a rebalanced market, with a forecast of lower supply from both OPEC and non-member producers in 2017 in the wake of its recent deal on production limits.

Non-OPEC oil supply is projected to grow by 120,000 bpd this year, representing a downward adjustment of 180,000 bpd, the report said.

Lower estimates on production from Russia, Kazakhstan, China, Congo and Norway have been partially offset by a 230,000 bpd upward adjustment to US supply, it added.

OPEC’s natural gas liquids (NGL) production is forecast to grow by 150,000 bpd in 2017, following growth of 150,000 bpd last year.

“In December, OPEC production decreased by 221,000 bpd, according to secondary sources, to average 33.08 million bpd,” the report said.

On region-wise demand for oil, the report said Saudi Arabia saw a sharp drop in November by 290,000 bpd, or 12 percent year-on-year, as demand for direct crude burning for power generation eased.

“High levels of substitution with natural gas from the new Wasit gas plant, which started operations in March 2016 has had an immense impact on consumption for direct crude burning,” it added.

Middle East oil demand was flat in 2016, but is projected to increase by 110,000 bpd in 2017.

In China, oil demand grew by 290,000 bpd in 2016, and is expected to grow by 270,000 bpd this year.

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com