Global oil demand to rise by 1.5 mm bpd this year

Global demand for oil will increase by 1.5 mm bpd this year according to a forecast by Societe Generale. In its “Commodities Review” report published this month, analysts say that half of this year's demand increase will come from the US and China with more than 400,000bpd increase.
On the supply side, the report says, Russia will be the main contributor, increasing output by 600,000bpd, although its impressive growth rate will begin to slow down next year. The exceptional increase of oil demand last year was mainly caused by extreme cold weather in the northern hemisphere, the closure of 17 nuclear plants in Japan and heavy substitution for natural gas in North America.

The report says this year's demand increase will be purely driven by the worldwide economic growth. The world GDP growth is predicted to be 4.5 % in this year, while it is expected to slow down by 4 % in next year. In China, the demand growth is closely linked to government spending than to the overall GDP growth.
"We expect the growth in government spending to slow, reflecting worries about the overheating of Chinese economy. On the other hand, the growth in private consumption should offset most of this slowing. We forecast, therefore, an increase in Chinese demand for oil this year of 400,000bpd slightly less than 465,000bpd last year."

Most of the new demand in the world market this year will be met by non-OPEC suppliers. The effect of price on non-OPEC supply operates at two levels. Most of the oil producers have benefited from comfortable production margins since the average price exceeded $ 25 per barrel, as a result they now possess the financial resources that allow them to finance new investments in new production capacities.
"The real impact of OPEC's strategy of keeping prices above $ 22 a barrel was to convince the producers that prices would not descend below this level. As a consequence producers have raised the internal reference price by which they estimate the profitability of future projects. By increasing these reference prices from $ 16 a barrel to $ 18 a barrel, numerous projects that previously had been judged insufficiently profitable can now be pursued. OPEC is paying the price of its success," the report added.