OPEC hikes 2018 forecast for oil supply growth

OPEC said it expects demand for oil to grow faster than it originally expected in 2018, but the organization also sees supplies from beyond the producer group surging this year, driven by rising US output.

The cartel said it now sees non-OPEC production growing by 1.4 million barrels per day, up 250,000 bpd from its estimate in its last monthly report. It expects nations outside OPEC to pump a total of 59.26 million bpd this year, 320,000 bpd higher than its last forecast.

"According to the most recent assessment, the steady oil price recovery since summer 2017 and renewed interest in growth opportunities has led to oil majors catching up in terms of exploration activity this year, both in the shale industry and offshore deep water," OPEC said.

On the demand side, OPEC said it now expects the world's appetite for oil to grow by 1.59 million barrels a day, up 60,000 bpd from last month's forecast. That would put total global oil consumption at 98.6 million bpd in 2018.

"Cumulatively, between 2015 and 2017, the world has added around 5 mb/d of demand for oil products on the back of healthy economic conditions globally and a relatively steady product price environment," OPEC said.

"In line with the existing overhang, the market is only expected to return to balance towards the end of this year," CNBC cited OPEC as saying.

An associate professor of the Graduate School of Corporate Management of RANEPA, Ivan Kapitonov, speaking to Vestnik Kavkaza, noted that the increase in demand for oilwas due to the worldwide acceleration of the rate of economic growth. "First of all, we need to remember about the Chinese economy, which has increased growth rates. The EU economy traditionally increases its demand every year, and this year it is expected that the growth rates in some European countries will also exceed those planned. This will traditionally increase the demand for energy, in particular, for oil, which will partially compensate the increasing production in the US, if OPEC retains quotas for this year," the analyst explained.

At the same time, he noted that it is very difficult to say exactly how demand growth will compensate for the growing supply in view of the fact that the US continues to increase production.

"The US increased its output by 3 million barrels per day, but Iraq also added more than 2 million bpd. Such an increase is informational, it just pushes up oil prices. We should not say that it is fundamentally important for the market, but it contributes to the price increase due to financial factors," the expert concluded.

A leading analyst of the National Energy Security Fund, a lecturer at the Financial University under the Government of the Russian Federation, Igor Yushkov, also said that a change in OPEC's forecast was informational. "Its goal was to make traders to buy futures. OPEC understands that there should be some positive signal for the market, to make traders to start buying futures. As a result, the demand will increase, which means there will be a shortage of oil on the market and the price will rise," the expert believes.

At the same time, he noted that it is impossible to answer the question of how much the growth in demand for 1.6 million barrels per day will compensate for the growth in supply. "But in general, I think American slate projects will not restore production at an accelerated pace, they see how unstable the market is," the analyst said.

Yushkov also noted that the restoration of oil shale production largely depends on external financing, as these projects become extremely risky and unprofitable if prices are unstable. "They take loans from banks, start to produce shale oil, shale gas. But when the price falls from $72 to $62 per barrel within a few days, banks consider such investments risky, so they give money at a high interest. Therefore, there is a problem that everyone is afraid to increase production volumes, because this is fraught with the risk of going bankrupt," Igor Yushkov concluded .