Americas News
"Rampant Demand Growth" Helping Prop Up Oil Prices: Energy Aspects
One day after a report from the Organization of the Petroleum Exporting Countries (OPEC) and recent International Energy Agency findings of modest demand growth that will supposedly help bring about an elusive global market re-balance, Energy Aspects Ltd. says growth is in fact "rampant", and helping sustain the $50-plus oil prices brought about by OPEC's production cutback agreement.
Amrita Sen, chief oil analyst for Energy Aspects, told Bloomberg, "With all the focus on OPEC cuts and the response of U.S. shale, very few were paying attention to just how rampant demand growth has been.
"In fact, demand is roaring ahead."
Jason Bordoff, director at the Center on Global Energy Policy at Columbia University, agrees: "Stronger-than-expected demand is helping to re-balance the market, [and] colder weather, low prices, also stronger growth projections for emerging economies like China or India" are driving the expansion.
However, Bordoff warned that the demand could peak prematurely, and for various reasons: "if GDP growth is slower than past trends, fuel efficiency rises more sharply, climate policies become more stringent, or alternative-fuel vehicles take off more quickly."
Bordoff also pointed out that demand growth is still “fairly small” compared to the amount of global surplus oil, and there are still “headwinds in the medium term” as emerging economies become more efficient in their fuel use.
Victor Shum, VP of IHS Energy Insight, is another expert who says there will be higher demand globally, starting in the spring; however, in discussing the high compliance rate of the OPEC cutbacks with CNBC, he noted that the demand will cause the Arab Gulf producers to "likely increase" output, and "there's going to be a slippage in compliance."
Shum reiterated what just about every analyst has already forecast: that "with these stronger prices that we're seeing, U.S. output will increase…the U.S. is going to take up the mantle of driving global production growth."
He added that production growth and supply growth "will pretty much offset each other, so we don't predict any spectacular changes in crude price unless there's some unexpected supply disruptions, orpolitical tension between U.S. and Iran – there are some risk factors."
But demand offsetting growth is a big `if' and one that not many market analysts buy into: not only does U.S., growth have the potential to add to the global glut, it might compel other nations who have restrained their output under the OPEC deal to pump full out, thus causing another price collapse.
It's also noteworthy that no publication of figures has accompanied Energy Aspects' or HIS Energy's forecast of "rampant" growth; a more tangible outlook came earlier this week from OPEC itself, which in its monthly report revised its forecast for oil demand in 2017 to a growth of 1.2 million barrels per day (bpd), up slightly from an earlier estimate and "well above" the 1 million bpd averages of the past decade.
However, the cartel's forecast is down from the 1.3 million bpd it estimated for 2016.
In a similar vein, the IEA last week upped its global demand forecast slightly to 1.4 million bpd; but that figure too was down from the 1.6 million bpd the IEA predicted for 2016.
