Monthly Oil Market Report - PDF download
This is from OPEC July 2018 Monthly Report. You can download it for yourself if this is hard to read.
What's new this month is that OPEC is now showing its 2019 forecast. There is a troubling trend here. So let's walk through it.
OPEC expects global demand to continue to grow. From 2015 through 2019, the trend is 94.1, 95.5, 97.2, 98.9, and 100.3 mb/d respectively. So this is the headline growth that we spend most of our time talking about. The idea of peak demand is that this maxes out sometime and falls after that.
Looking elsewhere at BP data, there is a substantial gap between consumption and crude production. That gap includes renewable fuels, and fuels derived from coal and natural gas, also inventory builds and draws contribute. In 2017 consumption grew 1.7 mb/d while actual crude production only rose 0.6 mb/d. Clearly not all oil demand growth is satisfied by growth in crude production. So we really ought to be thinking about peak crude production which may come much sooner than peak oil demand.
But let's get back to the OPEC report. Non-OPEC and NGL Supply is also growing from 2015 to 2019, 63.6, 62.9, 63.8, 65.9, and 68.3 mb/d respectively. We observe here that non-OPEC pulled back substantially in 2016. OPEC contributed the following from 2015 to 2017, 31.9, 32.9, 32.6. So OPEC only pulled back in 2017.
So is 2016 the (local) peak production year. This could prove to be the case. OPEC also tracks residual demand for OPC crude. This is global demand minus non-OPEC supply and OPEC NGL supply. This represents the amount of crude that OPEC would need to produce to balance the market. From 2015 to 2019, OPEC estimates this as 30.5, 32.7, 33.4, 32.9, and 32.2 mb/d respectively. So notice that OPEC demand peaked at 33.4 in 2017, while OPEC production came in at 32.6. The deficit of 0.8 mb/d was used to tighten up the market and reduce global stock. So it looks like OPEC may have hit a crude supply peak in 2016 and a demand peak in 2017. Will this stick? In 2018 OPEC needs to keep production at 32.9 to balance the market and then drop to 32.2 in 2019 to remain in balance. If OPEC were to over produce this year, the whole market could be punished in 2019 and beyond. This, at least, seems to be the quantitative outlook of OPEC.
The problem here is that as demand growth slows down non-OPEC supply is not slowing down fast enough. Thus the net demand for OPEC crude looks like it could be entering post-peak decline. US shale producers look like they are not interested in slowing their stride unless low oil prices force them to apply the breaks. Thus, OPEC must simply produce within net demand for their oil, if they want to retain a balanced market and favorable price of oil. So the decline in net demand for OPEC crude marks a downward trajectory for OPEC production. In effect, OPEC crude is the first victim to succumb to peak oil demand, which technically won't occur until next decade.
