OPEC Predicts Increased Oil Demand in 2016 While Analysts Anticipate Further Price Reductions

OPEC also says 2016 is the year in which "the rebalancing process starts."

The Organization for the Petroleum Exporting Countries (OPEC) now says global oil demand growth this year is expected to be around 1.26 million barrels per day (bpd) to average 94.17 million bpd – "marginally higher" than it had previously forecast.

The revised estimate is contained in the January edition of the OPEC Monthly Oil Market Report, which also notes that non-OPEC supply is projected to contract by 0.66 million bpd, following a downward adjustment of 0.27 million bpd: "The revision has been due to stronger declines expected in the US and Canada caused by the lower price environment," the report states.

OPEC characterizes 2016 as the year "when the rebalancing process starts; after seven straight years of phenomenal non-OPEC supply growth, often greater than 2 million bpd, 2016 is set to see output decline as the effects of deep capex cuts start to feed through."

It adds that the decline in maintenance capex "should also start to show through higher decline rates and possibly greater supply outages; places like Canada, the North Sea, Latin America, and parts of Asia are particularly vulnerable, with all projects in Canada now below cash cost."

With regard to crude oil price movements, the OPEC Reference Basket lost $6.86 in December to average $33.64 per barrel, and the report attributes this to "Persistent oversupply coupled with increasing signs of a slowing pace of growth in the Chinese economy, [which] exerted pressure on the oil market."

In December, OPEC said crude production decreased by 0.21 million bpd to average 32.18 million bpd, according to "secondary sources."

OPEC believes the demand for its crude will be 31.6 million bpd in 2016, or 1.7 million barrels higher than 2015; it also notes that despite China's economic woes, oil demand in that country is still expected to grow 290,000 bpd this year to average 11.13 million bpd.

Meanwhile, hedge fund manager Michael Corcelli stated that another big oil price fall is required for a significant rally: "There has to be one more major move down to blow everything out and then you'll see a v-shaped recovery that'll show you that the bottom's in - I don't think we've seen that yet."

In December, OPEC forecast a world oil demand of 97 million barrels per day by 2020, as compared to a forecast of 96.9 million barrels per day in its previous report.