Global Oil Market & Trading 2018

Global Oil Market & Trading 2018

A. Global Crude Oil Demand

Based on ExxonMobil 2018 Outlook for Energy: A View to 2040, the global demand reaches 680 quadrillion British Thermal Units (BTU) in 2040, increase about 25 percent from 2016 to 2040 with China and India contribute about 45 percent of world energy demand growth. Energy used in each sector reflects economic supply options and their general fitness for purpose as shown in Figure 2. Oil will continue to play a leading role in the world’s energy mix, with growing demand driven by commercial transportation needs and feedstock requirements for the chemicals industry.

The global energy demand

The global energy demand by sector

Based on BP Energy Outlook 2018 Edition report, the global demand for liquid fuels (oil, biofuels, and other liquid fuels) increases by around 13 Mb/d, reaching 109 Mb/d by 2040 (see Figure 3). All of the demand growth comes from emerging economies, driven by rising prosperity, with India replacing China as the primary source of growth. OECD (Organization for Economic Co-operation and Development) demand resumes its trend decline.

B. Global Crude Oil Supply

The BP Energy Outlook 2018 Edition also reported the global liquids supply increases by a little less (11 Mb/d), reflecting the excess supply of liquids in 2016. Supply increases are driven initially by US shale oil, with OPEC taking over from the late 2020s, as Middle-East producers adopt a strategy of growing market share. OPEC output increases by around 6 Mb/d by 2040. Non-OPEC supply grows by 5 Mb/d, with the US accounting for more than all of the net growth, and higher output in Brazil and Russia partially offsetting declines in higher-cost (see Figure 4).

The Fuel Global Demand and Supply

Growth in global oil production is driven by low-cost producers, especially US shale oil and Middle-East OPEC. Increases in oil production during the first part of the Outlook are dominated by US shale oil. The US is by far the largest producer of liquid fuels over the Outlook. In the final 10 years of the Outlook, production growth is increasingly driven by OPEC with more than 43% share (see Figure 5). The abundance of global oil resources is assumed to prompt OPEC members to reform their economies, reducing their dependency on oil and allowing them gradually to adopt a more competitive strategy of increasing their market share. If there were no new investment in oil production from today, and existing production declined at 3% p.a., global oil supplies would be around 45 Mb/d in 2040 (see Figure 6).

C. Global Crude Oil Production & Consumption

Based on BP Statistical Review of World Energy 2018 Report, the world oil production increased by only 0.6 million b/d in 2017, below average for the second consecutive year. Production fell in the Middle East (-250,000 b/d) and South & Central America (-240,000 Kb/d) but this was outweighed by growth from North America (820,000 b/d) and Africa (390,000 b/d) as seen in Figure 7.

The Figure 8 shows that the global oil consumption growth averaged 1.7 million b/d, above its 10-year average of 1.1 million b/d for the third consecutive year. China (500,000 b/d) and the US (190,000 b/d) were the single largest contributors to growth. Refer to U.S. Energy Information Administration, the global economic growth indicated with GDP movement has a strong impact on oil consumption worldwide as shown in Figure 9 below.

Oil production and consumption

Correlation of fuel consumption and GDP

D. The Global Crude Oil Price

The crude oil price depends on many factors not only supply and demands, the price also react to a variety of geopolitical and economic events, such as Arab oil embargo in 1973, Iran-Iraq war in 1980, Asian financial crisis in 1998, 9-11 attacks in 2001, OPEC cut target 1,7 mmbpd in 2002 and other events as shown in Figure 10.

Crude oil prices and geopolitical events

E. Global Oil Trading

Global oil trade grew by a very strong 4.3% (or 2.8 Mb/d) in 2017, well above the 10-year average growth of 1.7% and a third consecutive above-average year. Oil trade as a share of global consumption reached a record 68.8%. China, the world’s largest net oil importer, saw net imports rise by 11.5% (0.9 Mb/d) to reach a record 9.1 Mb/d. Russia was the largest net exporter in 2017 (8.6 Mb/d, a slight increase from 2016).

Major oil trade movements 2017 worldwide (million tonnes)

Usually industry sources concur that 90-95% of all crude oil and oil products are sold under term contracts where a volume is agreed with a specified tolerance over a defined period. The balance, 5-10%, is sold on the spot market. A spot deal is usually defined as a one-off deal between willing counter parties for a physical commodity. The spot market is representative of the marginal barrel in terms of supply and demand because the deals are on a one-off basis.

References

BP Energy Outlook 2018 Edition
BP Statistical Review of World Energy 2018
ExxonMobil 2018 Outlook for Energy: A View to 2040
Fattaouh, Bassam. Andreas Economou (2018). Oil Supply Balances: The Four Cycles of the OPEC Oil Output Policy. The Oxford Institute for Energy Studies
U.S. Energy Information Administration

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