Samruk-Kazyna JSC presents 2017 oil market outlook
We expect any reduction of OPEC’s output to be compensated by the potential increase in output from the US shale producers. A rebound in the US shale output is likely to limit oil price increase, as at the current US rig count, it is already on track to sequentially grow from the 1Q17. In 2017, oil price recovery will remain moderate and at this juncture, our central scenario suggests oil price to average of USD50-52pb.
Fundamentals
1. Global Growth and Demand Forecasts
Global economic growth remains essential to the oil market outlook. Some countries showed optimistic indicators, while others economic growth turned into recession in the last year. However, globally a higher economic growth rate is expected in 2017, compared to 2016. Last year, global GDP growth is estimated to be 2.4-3.1%, rising to 2.8-3.4% in 2017.
On the demand side, oil demand is expected to rise by 1.15mln bpd to 96.5mln bpd on average in 2017 (2016: +1.23mln bpd). This is on the back of a weaker growth in US, India and Europe (compared to 2016 as effects of price elasticity fade) whilst Japan and Brazil are expected to contribute in the opposite direction. China’s rebound in 2017 is expected to be one of the largest contributors to oil demand growth, due to the huge car sales numbers seen in 2016 translating into gasoline demand growth.
Upside potential relates to anticipated improving growth of the economy and consumption in the road transportation sector, while downside risks originate mainly from fuel substitution and, to some extent, from developments in vehicle efficiencies.
Source: IMF, World Bank, OPEC, IEA, Samruk-Kazyna
2. OPEC and non-OPEC Supply
On 30 November, OPEC members agreed to reduce its production by around 1.2mln bpd to bring its ceiling to 32.5mln bpd, effective 1st of January 2017. The duration of this agreement is six months.
Even with the proposed cuts OPEC’s 2017 production would still be at January 2016’s levels and this is in line with OPEC’s earlier expectations for production levels in 2017 irrespective of the deal being reached.
In support of OPEC’s decision to cut, on 9 December, 11 non-OPEC producers agreed to limit their output by 558,000bpd starting from January 2017 for six months. This implies a combined output cut by OPEC and non-OPEC countries at almost 1.8mln bpd. Russia, the participation of which is significant as it is the largest exporter outside the cartel, pledged a reduction of up to 300,000 bpd from its November output of 11.2mln bpd.
The decline in non-OPEC oil production YoY should stabilize in 2017. Whilst the production in Europe and Asia Pacific is expected to decline, it will be offset by increasing growth in Brazilian and Canadian production. Canada is anticipated to be the third largest source of non-OPEC supply growth after Brazil and Kazakhstan in 2017.
Non-OPEC Oil supply forecasts, mln bpd (2016-2017f)
Source: OPEC, IEA, Samruk-Kazyna
Oil price forecasts and volatility
We expect volatility in oil prices to remain high in 2017 as risks to oil prices from OPEC and non-OPEC actions, slower-than-expected oil demand growth; geopolitical factors are likely to affect oil prices in 2017.
We expect any reduction of OPEC’s output to be compensated by the potential increase in output from the US shale producers. A rebound in the US shale output is likely to limit oil price increase, as at the current US rig count, it is already on track to sequentially grow from the 1Q17. Oil price recovery will remain moderate this year and at this juncture, our central scenario suggests oil price to average of USD50-52pb for 2017.
Oil price forecasts, USD pb
Source: Bloomberg, Samruk-Kazyna
^represents in-house projection by Samruk-Kazyna, average price expected for 2017
A gradual uptick in oil prices will bode well for Kazakhstan’s economy. Preliminary official estimates showed that GDP growth was at 1.0% in 2016, in line with our in-house forecast of 0.8%-1.0%. For 2017, we anticipate GDP growth to pick up further, supported by higher global oil prices, increase oil production and continued fiscal stimulus spending.
Disclaimer & Disclosures
The Research and Knowledge Management Department Strategy and Portfolio Investment Block of JSC “Samruk-Kazyna” (hereinafter referred to as “the Research Team”) is responsible for the analysis of this report. The Research Team certifies that all views expressed in this Research report (hereinafter referred to as “Report”) reflect the Research Team’s personal views.
The Report is based on the information taken from the sources which the Research Team considers reliable and takes every care and precaution to ensure that information related to the Report published on the corporate website of JSC “Samruk-Kazyna” is accurate and regularly updated, but neither the Research Team nor JSC “Samruk-Kazyna” make guarantee, warranty of any kind, express or implied, or make representation as to the accuracy or completeness of the information contained in the Report or otherwise, and it should not be relied on as such.
Neither the Research Team nor JSC “Samruk-Kazyna” or any of its officers, employees shall be liable for any losses or damage that may result from use of the information contained in the Report as a consequence of any inaccuracies in, errors or omissions, if any, from the information which the Report may contain or otherwise arising from the use and/or further communication, disclosure, or other publication of the information contained in the Report.
This Report is solely intended for general informational purposes and is provided for internal distribution within JSC “Samruk-Kazyna”. This Report is not in any sense a solicitation or offer of the purchase or sale of securities or any assets in any jurisdiction.
Source: Samruk-Kazyna website