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However, that low price-high demand effect has shown signs of waning and with prices expected to continue their upward grind into 2017 (we forecast Brent at an average of USD 55/b next year, some ways between market consensus and the current forward strip) consumers may begin to reevaluate how much marginal oil they need.
The three major oil market institutions—the IEA, OPEC and the US government's EIA—all project oil consumption growth will slow in 2017 albeit with considerable divergences in their forecasts. The most bullish is the EIA which expects growth of 1.44m b/d in 2017, only marginally slower than their estimate for this year. More significantly, the EIA has kept its outlook for 2017 reasonably stable with a slight upward bias since its initial projections in January. OPEC is the most bearish, anticipating demand growth of just 1.16m b/d in 2017 compared with 1.22m b/d this year. OPEC has only published two forecasts for 2017 so far but its outlook is much closer to the 10-year average for oil demand estimated by the IEA of a little more than 1m b/d. The IEA splits the difference with a forecast of 1.2m b/d of demand growth in 2017, a slowdown from 1.4m b/d this year.
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Source: Emirates NBD Research.
Where all the agencies do align is in their views on the origins of growth in 2016-17. Emerging markets or the non-OECD will carry the burden of pushing global oil demand higher while consumption in developed markets squeaks out growth of barely 200k b/d on average. Much of this projection centres on consistent above trend growth from India. Consumption there has soared over the past few years and its recent decline appears to be part of a highly seasonal lull in Q3 as monsoon weather displaces the need for diesel-powered irrigation pumps. We expect another year of fast (8%) real GDP growth in India next year which should help to keep oil consumption growth elevated, particularly on the back of continued government capital spending and incentives for domestic manufacturing.
Edward Bell
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