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Global oil demand growth is looking stronger

Last updated: 18:12 20 Oct 2017 BST, First published: 13:12 20 Oct 2017 BST

OPEC

It’s been a good run for the oil market despite a bit of profit taking midweek as the consensus on a rebalanced market is gaining ground.

Stronger economic growth and declining inventories are boosting sentiment and in early trading on Friday, Brent crude was priced above US$57 with WTI holding around US$51 a barrel.

Key players from the oil sector gathered in London this week for the annual Oil and Money conference, where the mood was upbeat and OPEC’s Secretary General, Mohammad Barkindo took the opportunity to tell an eager audience how he saw “light at the end of the dark tunnel we’ve been travelling down for the last three years.” Referring to the success of the collaboration between OPEC and non-OPEC countries, analysts agree that the removal of 1.8 million barrels a day has certainly eased the market. Barkindo added, “there is no doubt that the market is rebalancing at an accelerating rate.”  He re-iterated his intent to try and widen the discussion with American producers.

The future of US production was also a key topic at the conference as stronger prices will be attractive to American shale producers and investors. The chief energy economist at Energy Intelligence, David Knapp said that US shale could “have a second peak coming,” with strong production for years to come in Eagle Ford and in the Permian. Together, these two oil basins deliver about two-thirds of the country’s shale production. The CEO of Pioneer Natural Resources, Tim Dove told the conference that he intends to quadruple production in the next 10 years. Overall oil production in the US is expected to rise above 10 million barrels a day in 2018.

While the oil market may be enjoying a more reasonable price in recent weeks with predictions of stronger economic growth and lower inventories, the CEO of one of the world’s biggest oil trading groups, Vitol cautioned the possibility of a decline in price on the horizon. Ian Taylor told the conference he was predicting a price of around US$45 a barrel for Brent crude, saying he believed that “there’s still one more big surge coming from the US, which will knock prices down.”  The CEO of French oil company Total, Patrick Pouyanne agrees that the oil market is slowly rebalancing, but added that he also expects “another wave of investment in US shale.”

Global oil demand growth is looking stronger and predictions for a more stable economy remain positive. Pouyanne says he anticipates growth of around 1.6 million barrels a day. OPEC’s Barkindo said he believed the stronger demand for energy meant there would be “no peak demand for the considerable future.” He added that he expects “global oil demand to surpass 100 million barrels a day by 2020.” The current demand global oil demand is around 96.8 million barrels a day. Barkindo thanked the OPEC supporting countries and talked of the “historic” commitment in place that had helped to stabilise the oil market. While the market expects a roll-over of this agreement till the end of 2018, Barkindo said this conversation will be had at the end of November when OPEC ministers meet in Vienna.

The commodity market has been trading well in recent weeks, above its 50-day average and despite a stronger dollar. A sense of cautious optimism prevails in the market with hope and predictions for sustained strength in demand and price for the remainder of the year.

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