Economic Report 2018

ECONOMIC REPORT 2018

Figure 2: Global Oil Supply and Demand Balance

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Global Demand Global Supply

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Global Oil Supply and Demand (Million Barrels per Day)

2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1

Source: IEA

There are also persistent questions around the rate of global oil supply. This has been driven by factors including uncertainty around OPEC production caps, as well as the impact of the US’ decision to withdraw from the Iran nuclear deal inMay 2018 and the subsequent reinstatement of economic sanctions, including on Iranian oil exports. The effects of this are likely to be significant; Iran is the world’s fifth-largest oil exporter, having exported around 2.1 million bpd last year 2 , and when sanctions were first imposed on the country between 2012-15, exports were cut by more than 1 million bpd. Immediately after the US’ decision to withdraw from the Iran nuclear deal, Brent increased by more than 3 per cent to rise above $80/bbl, the highest level since 2014, although it has since fallen back. However, the long-term impact of the re-imposition of US sanctions on the global oil market is yet to be fully realised, with any US sanctions on Iranian oil exports likely to take effect from November 2018. As a result of the potential reduction in Iranian oil exports, there had been increased speculation that OPEC would ease previously agreed cuts on output in order to offset any global supply shortfall. OPEC members and non-OPEC participating countries, most notably Russia, agreed a cut in overall output of 1.8 million bpd at the start of 2017, and at the 173 rd meeting of OPEC in December 2017 it was agreed that the cuts would be extended throughout 2018. This was the first time that Russia had supported an OPEC supply reduction. This agreement ensured that combined output from OPEC countries would remain below 32.5 million bpd in an effort to stabilise market conditions. The reduced level was equal to around one-third of total global daily oil production during the first half of the year.

2 www.opec.org/opec_web/en/about_us/163.htm

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