Oil Outlook: Oil Demand Set to Grow in 2014

Oil Outlook: Oil Demand Set to Grow in 2014

IEA expects demand growth

For 2014, the International Energy Agency (IEA) is expecting a rise in global oil demand due to increased consumption in both Europe and the United States. The agency is expecting oil demand to grow in the coming year to the tune of 1.2 million barrels a day (mbpd), or 1.3 percent. That would bring the expected aggregate demand for oil in 2014 to 92.4 mbpd compared with the current 91.2 mbpd for 2013.

According to Bloomberg, the agency states that “[w]hile the agency boosted its forecast for the crude volume OPEC will need to supply,” making room for the potential return of Iranian exports “could be a challenge for other producers” in the group.”

Commenting to the latest IEA report, Michael Lynch, president of Strategic Energy & Economic Review, explained that the latest announcement is quite a change from the previous expectations. “The geopolitics are now bearish, while the fundamentals are bullish,” he said, adding that “[p]eople are anticipating tighter supplies as we go into next year. Demand will be higher.”

OPEC holds on to demand growth forecast

Like the IEA, the Organization of Petroleum Exporting Countries (OPEC) is sticking to its 2014 forecast that global oil demand will grow at a much faster rate than in 2013 as the global economy shows distinct signs of recovery.

In its December monthly report, OPEC is anticipating average demand of 98.84 million barrels of oil per day in 2014. That figure is up 1.04 mbpd from the previous year’s estimates.

OPEC says that the main driving force behind its estimates in 2014 are the developing economies, with demand from members of the Organisation for Economic Co-operation and Development (OECD) expected to decline by 0.2 mbpd.

Last month, OPEC agreed to keep its production ceiling at 30 mbpd; however, it could increase in the coming months as Iran and Iraq set their sights on bumping up their exports. The Wall Street Journal Live Mint also says that Libyan oil supplies could potentially recover from a recent plunge.

EIA sees record-high oil production

The Energy Information Administration (EIA) has released some figures ahead of its 2014 Annual Energy Outlook that provide some hints as to what investors could expect coming in 2014. According to the EIA, crude oil production out of the US is expected to reach a record by 2016, its highest level in 46 years due to production from shale formations boosting domestic supplies. With less of a dependence on foreign oil, domestic output is slated to grow by 800,000 barrels per day to 9.5 million in 2016.

Speaking to Bloomberg, John Auers, senior vice president of Tuner Mason & Co out of Dallas explained that “The production growth we’ve seen is exceeding what anyone would’ve predicted a few years ago.”

Auers expects that new, even higher production levels will continue to be achieved as the technologies being used become more advanced. Over the last year, US oil production has increased by 18 percent to a 25-year high, as the both horizontal drilling and hydraulic fracturing have made shale formations more accessible.

“EIA’s updated reference case shows that advanced technologies for crude oil and natural gas production are continuing to increase domestic supply and reshape the U.S. energy economy as well as expand the potential for U.S. natural gas exports,” EIA Administrator Adam Sieminski said in a statement.

The EIA is expecting that as a result of increased output, investors can expect imported energy sources will fall from 16 percent in 2012 to 4 percent by 2040. Meanwhile, US petroleum and liquified fuels supply is slated to be down 25 percent by 2016. Also a result of higher production, EIA expects that higher productions will help bring down Brent crude oil prices, which are currently expected to fall to a low of $92 per barrel by 2017, before finally resuming their climb to $141 in 2040.

What about the price?

With all the humming and hawing about the anticipated increase in oil production in the coming year, it should be noted that oversupply could be pushing prices down in the news year. According to Times of Oman, crude prices are likely to pull back in 2014.

Global Head of Foreign Exchange Strategy at HSBC, David Bloom, told the publication that he sees demand as being “reasonably robust”, citing some issues on the supply side that have raised some concerns over the prices.

The Wall Street Journal Live Mint also cautions that world oil prices could potentially head lower in 2014 as higher output from OPEC and increased production from shale formations lead to a possible oversupplied market, despite
upbeat Asian demand for crude.”

In its Short-Term Energy outlook, the EIA is holding WTI crude oil at $95 per barrel in 2014. Meanwhile, Brent crude is expected to fetch $104.08 per barrel.

 

Securities Disclosure: I, Vivien Diniz, hold no direct investment interest in any company mentioned in this article.