Economic Report 2019

Trade tensions between China and the US have had a negative impact on global economic growth as well as the impact of reduced productivity and investment in the Euro area. It is anticipated that economic performance will improve into 2020, with global GDP growth forecast to increase to 3.5 per cent, however this remains uncertain. In August, the International Energy Agency (IEA) downgraded its oil demand growth forecast to 1.1 million barrels per day (bpd) in 2019 — the third consecutive monthly cut and down from a forecast of 1.5 million bpd this time last year. 6 The first five months of 2019 saw the lowest level of demand growth (520,000 bpd) for the period since 2008. Demand growth is, however, expected to pick up in the second half of 2019 and into 2020, fuelled by hopes that some improvements in global economic performance may begin to emerge.

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Figure 10: Global Oil Supply and Demand Growth

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Global Oil Demand Global Oil Supply

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)dpb noilliM( dnameD dna ylppuS liO labolG

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2010 2011 2012 2013 2014 2015 2016 2017 2018 H1 2019

Source: IEA

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With regards to supply, IEA figures show that levels in the first half of the year were on par with those in 2018 and Wood Mackenzie estimates that total 2019 global supply growth could reach 1 million bpd 7 — slower than the anticipated growth in oil demand. Rystad Energy estimates that, overall, the market will be relatively well balanced between supply and demand this year. 8 As in 2018, increased output from US onshore production has dominated supply growth this year. The IEA estimates that US output will increase by a further 2 million bpd in 2019, a growth rate almost double that of the UK’s total daily oil production. The continued ramp-up in US production has been accommodated by strong compliance with production cuts by OPEC and partner countries, largely the result of further reductions by Saudi Arabia and the UAE. OPEC production in June marked a five-year low (29.6 million bpd) and member and partner countries have committed to maintaining the cuts for a further nine months, until at least March 2020. Between 2016 and the first half of 2019 US oil production has grown from 9 per cent to more than 12 per cent of global supply, whereas OPEC supply share has fallen from 41 per cent in 2016 to 36 per cent, demonstrating the changing nature of influence in the market.

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6 IEA Oil Market Report , August 2019 7 Wood Mackenzie Global Oil Supply Short-Term Outlook , July 2019 8 Rystad Energy Oil Market Update Report , August 2019

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