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Oil markets and the gap between supply and demand

oil prices were able  during  the last December  to achieve levels not seen in nearly two years after the agreement  of «OPEC» and major producers to cut oil production by 1.8 million barrels a day in cooperation with Russia and others to reduce their supply, in a move to restore balance to the markets during 2017.

In the midst of optimism of the recovery of oil  markets  and talking about the  growth  of demand on crude ,  questions  have emerged  on the issue of supply and demand  and the ability of supply to meet the growing global demand for oil, where estimates indicate a disparity between demand and supply up to 600,000 barrels per day, which may occur the case of the deficit within the oil markets.

Organization of Petroleum Exporting Countries “OPEC” expects high demand for OPEC oil states to the  level  by 33 million barrels a day at a time, which it  is expected   the success of the agreement of the reduction of production to maintain the production of OPEC members at 32.52 million barrels per day which means  that the demand for that oil of  the organization will be more than the supply of about 500 thousand barrels per day  and that will enhance the growth of prices to appropriate levels  for the   promotion of investments , as some charge  “OPEC” of causing the oversupply will be far from reality in the new year in the light of the growing demand. ”

The International Energy Agency said in its monthly report, published in the last month of December  that  the global demand on oil  will rise in a  stronger pace than expected in the years 2016 and 2017, the report added that the planned reduction  of the production of these countries could lead to increase the demand  over the  supply by 600 thousand barrels per day .

The report also said that if OPEC  is committed  to a plan  and without a slowdown  to  reduce the production to 32.7 million barrels per day, along with the other producers to cut their production by 558 thousand barrels per day, it is likely that the market will  move into deficit.

And  the International Energy Agency raised , for its part, its forecast for growth in oil demand in 2017 to 1.3 million additional barrels a day with the changing of   demand data  for oil by China.

According to the agency  world oil markets will move to a deficit during the first half of 2017, where it is expected  that the size of the demand to exceed  the supply at about 600 thousand barrels per day, so if  “OPEC” and producers outside the Organization are committed  to the historic agreement to cut production, which was concluded recently . The agency added in its latest monthly report on the state of the global oil markets, this assumption is based on the full  commitment  of “OPEC” to ceiling of the new production  at 32.7 million barrels  per day, as well as the co-producers commitment from the outside “OPEC” to the  reductions agreed upon  and identified about 560 thousand barrels per day.

The  «Bloomberg» explored the views of 24  oil analysts,  and concluded that the average of  price expectations will be $ 53 a barrel during the first quarter, and $ 56 during the second quarter, and $ 58 over the full year.

Experts believe that needs of  producers  to raise energy prices was the main stimulus  for the commitment  to  the Vienna agreement and reduce the supply and the convergence of the gap between supply and demand down to the desired state of balance in the oil market.

Economic reports expect  the oil markets to see  a  slight improvement  during the current year and it  is expected  that the markets to turn  into a state of balance during the second half of the year 2017, while the Arab economies could see an improvement in 2017, especially with the improvement in oil prices, especially those rentier states  whose budgets  are based  on the price of a barrel of oil. As well as the improvement in the oil market in the world only by avoiding a recession in the global economy, however expectations remain subject  to the commitment of members and non-OPEC  to the agreement, it is expected that prices are improving supported by expectations of lower US crude stocks and the commitment of producers to the  agreement to cut production, which went into effect earlier this year.

 

Amer Al-Omran

Translated  by : Mudhaffar  Kusairi

Rawabet Research and Strategic Studies Center