Commodity Market Report

Macro Oils long-term outlook H2 2018: navigating structural change

Harry Paton

15 November 2018

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Report summary

Our H2 2018 Macro Oils long-term view remains relatively unchanged from our Spring outlook. The global oil market continues to grapple with the rise of tight oil, and longer-term, the prospect of peak oil demand as the energy transition gathers momentum. In the short-term, strong non-OPEC supply gains continue to surpass demand growth, putting pressure on OPEC to restrain production to maintain prices above $70 per barrel. But as we move into the early part of next decade, US supply growth decelerates rapidly. This takes pressure off OPEC and sets the stage for higher prices as demand continues to grow, albeit at a slower rate. With oil demand forecast to peak in the late 2030s prices come under downward pressure. But any price adjustment is limited by the high cost supply needed to meet the 110 million b/d of oil demand by 2040.

Executive summary
- Global supply outlook remains robust
- Non-OPEC supply dominates near-term growth, led by US Permian upgrade
- US Lower 48 crude: faster ramp up, (slightly) higher peak
- The roaring 20s for the Permian; meanwhile growth in mature plays starts to peter out
- OPEC long-term growth led by Iraq, UAE and Kuwait capacity increases; offsetting Iranian sanction losses
- Global demand: trend of fading growth holds despite upward revision
- Gasoline demand: India overtakes China as main growth centre
- Diesel/gasoil demand: Europe in decline as 'dieselisation' reverses
- Petrochemical feedstocks dominate demand growth, but environmental regulation poses a key risk