The recent pickup in global economic activity in combination with supported developments in the oil market is seen leading higher economic growth of 3.1 percent in 2017 following 2.9 percent growth in 2016. However some downside risks prevail as policy decisions may lead to the use of stimulus measures that may lift inflation to levels higher than anticipated by central banks. This in turn could lead to quicker than expected rise in interest rates, triggering numerous repercussions on economic growth in various economies, mainly in emerging markets. Despite these uncertainties, the economic landscape is expected to improve in 2017.
The OECD economies are forecast to grow at 1.7 percent, the same level as in 2016. Russia and Brazil are forecast to grow at 0.8 percent and 0.4 percent in 2017 respectively after 2 years of recession. China and India are forecast to expand at a slightly slower pace in 2017 at 6.2 percent and 7.1 percent respectively compared to 6.7 percent and 7.5 percent in 2016, so growth remains encouraging.
World Oil demand growth is estimated at 1.24 million bpd in 2016, supported by the transportation sector, reflecting lower retail prices and better than anticipated vehicle sales. In the non-OECD, other Asia and china saw solid to steady oil demand growth. In Latin America and Middle East, oil requirements were lower than initial projection, as slower economic developments and a high level of substitution dampens oil consumption. In 2017, world oil demand is projected to grow by 1.15 million bpd.
In OECD, oil demand is projected to rise in OECD Americas, flatten in Europe, and continued declining in Asia Pacific. In non-OECD, improvement in economic activity is assumed to provide support to oil demand growth particularly in Latin American and Middle East. Non-OPEC oil supply in 2016 is expected to contract by 0.78 million bpd.
The main contributors to this decline are the U.S., China Mexico, Columbia, and other OECD Europe. While growth is anticipated to come from Russia, Brazil, Congo and The UK. Low oil rice led to a decline of 420,000 bpd in American oil production. Declines are also seen coming from Columbia and China as well as Canadian conventional crude output. In 2017, non-OPEC oil supply is projected to grow by 0.3 million bpd, despite initial projection in July 2016 for a contraction. This is mainly due to higher price expectation for 2017.
The main contributor to non-OPEC supply growth are Brazil with 0.25 million bpd, Kazakhstan with 0.21 million bpd and Canada with 0.17 million bpd. In contrast, Mexico, The U.S., China, Columbia and Azerbaijan are expected to show the main declines. However, this forecast remains subject to a number of uncertainties, including the pace of economic growth, potential new policies and price developments.
Based on the above forecast, the demand for OPEC crude in 2017 is expected to stand at 32.6 million bpd, which is slightly higher than the 32.5 million bpd level referred to in the most recent OPEC ministerial conference. This combine with the joint cooperation with a number of non-opec countries in adjusting production by around 0.6 million bpd, will accelerate the reduction of global inventories and bring forward the re-balancing of the oil market to the second half of 2017.