In 2017 oil market may move from oversupply to balance
S&P Global Platts, a major provider of energy and commodities information, published its overview of key trends of the world's oil and gas markets in 2017. Oil prices will depend on producers' discipline to enforce and maintain output cuts as well as on U.S. shale production levels.
In 2017, the global oil market is likely to move from oversupply to a more balanced situation, according to a forecast by S&P Global Platts. If an oil production cut announced by OPEC and non-OPEC countries at the end of 2016 is really implemented, an existing overstock of crude oil may disappear by the third quarter of 2017. However, Libya and Nigeria, which were exempted from the agreement because of a dangerous economic situation, can increase their output significantly and thus undermine the cartel's efforts to stabilise the market.
Besides, oil prices may be constrained by return of U.S. shale producers. ''The next few years will be shaped by the relationship between U.S. shale and OPEC, Russia and other key oil producers. This landmark agreement between OPEC and non-OPEC is providing a floor to oil prices and U.S. shale is providing the ceiling,'' considers Paul Hickin, an oil editorial director at S&P Global Platts.
Speaking of oil importers, Platts Analytics expects that India's oil demand will grow faster than China's for the third consecutive year. India's imports are supposed to increase by 7% and reach 4,13 million bpd, while Chinese oil demand is meant to rise only by 3% to 11,50 million bpd. Global imports can shift to sweeter crudes with lower sulphur from Angola, the North Sea and possibly the U.S.
As for gas, a recent trend for dissociation between oil and gas prices is likely to continue in 2017 due to a volatility of the oil market and an increasing competition between liquid natural gas (LNG) and pipeline gas. LNG production in Asia is expected to grow by 16% and reach 127 million mt/year in 2017. At the same time, Asian demand will also grow as China and India will increase their imports by 28% and 38%, respectively. Therefore, the region remains a net LNG importer.
The U.S. will raise its gas production volumes and intensify pipeline exports to Mexico and LNG exports to Latin America, Asia and Europe in 2017.
In the European gas market, Russia is likely to keep its strong positions at the beginning of 2017 ahead of a revision of contract prices. A growing supply gap caused by a decrease in Europe's domestic production will be filled mainly by LNG and Russian gas. Furthermore, coal-to-gas switching should further increase the region's demand. ''The growing surplus of LNG, combined with the desire to burn cleaner fuels, creates positive conditions for coal-to-gas switching in 2017. In turn, this could provide the basis for more sustained growth in world gas demand and eventually another round of investment in the global LNG sector,'' says an expert of S&P Global Platts.