Rocked by the US decision to pull out of the Iran nuclear deal this past week, the global oil market is beginning to switch its focus from the fundamentals to geopolitics. And with the possibility of lower Iranian exports and the pace of decline of oil production in Venezuela causing output to fall by several hundred thousand barrels a day, there could be a potential double supply shortfall later this year.
Oil prices have now surged to above $77/bbl. causing the IEA to lower its estimate for 2018 global oil demand growth by 40,000 b/d to 1.4 million b/d, and it increased expectation for US oil production growth this year by 120,000 b/d. This could be the lowest level in 3 years and almost 1 million bbl. below the 5-year average figure.
World Economy, Oil Demand
While the global economic outlook remains supportive, the International Monetary Fund expects world economic growth to accelerate to 3.9% in both 2018 and 2019, up from 3.7% in 2017. While the projections for non-OECD countries are mainly unchanged, the outlook for Europe has been revised with growth expected to accelerate to 2.9% in 2018, up from 2.3% in 2017.
Global oil demand growth for 2018 has been revised slightly downwards in this report to 1.4 million b/d from 1.5 million b/d, due to higher price expectations. Now, world oil demand is expected to average 99.2 million b/d in 2018.
World oil supply has held steady since April at close to 98 million b/d but was up 1.78 million b/d on a year ago thanks to an increasing non-OPEC supply. According to IEA, non-OPEC output will grow by 1.87 million b/d in 2018. And OPEC crude production eased by 130,000 b/d to 31.65 million b/d in April as a result of lowered Venezuelan and African output. Compliance with the Vienna Agreement reached a record 172%.
US President Donald Trump made the decision to withdraw from the Iran deal on May 8. With it, a spokesperson for the IEA stated, “In these early days, there is understandable uncertainty about its potential impact on Iran’s oil exports, which are currently about 2.4 million b/d. There is a 180-day period for customers to adjust their purchasing strategies and it remains to be seen how waivers and other aspects of the sanctions will be implemented. In addition, other signatories to the Joint Comprehensive Plan of Action (JCPOA) have said that they will continue with the agreement,”
With the current geo and political uncertainty in the oil industry, one thing is for certain, the demand for jobs in the oil and gas industry’s has continued to rise over the past decade and is forecasted to climb even higher as positions will be available in all levels of the industry.
If you enjoyed this article, please feel free to share it on your favorite social media sites.