India takes centre stage in energy economy, to drive demand growth: IEA

Mae Love
November 14, 2017

Oil fell by more than $1 in morning trading in NY after the International Energy Agency reported that recent increases in the oil price and milder-than-normal weather had dampened demand growth.

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The Paris-based IEA revised demand growth down by 100,000 barrels per day (bpd) for both 2017 and 2018, for an increase of around 1.5m bpd this year, to 97.7m bpd, and 1.3m next, to 98.9m bpd, which could push the market back into a surplus in the first half of next year.

"However, if these problems do prove to be temporary, a fresh look at the fundamentals confirms the view we expressed last month that the market balance in 2018 does not look as tight as some would like, and there is not in fact a "new normal". And the IEA expects non-OPEC countries to boost output by 1.4 million barrels a day next year, doubling this year's production growth.

Compliance by the group with its joint 1.8-million-bpd output cut with 10 partners was 96 percent in October, the highest since the supply-reduction deal took effect in January. "Meeting this demand would require an overall investment of around $10.5 trillion across upstream, midstream and downstream operations" Opec Secretary-General, Mohammad Barkindo, said noting that the 2017 outlook was more positive than previous year, partly thanks to oil exporting nations' efforts to stabilise the market. The country is expected to account for 80 per cent of the increase in global supply over the same period.

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"Electric vehicles (EVs) are in the fast lane as a result of government support and declining battery costs but it is far too early to write the obituary of oil, as growth for trucks, aviation, petrochemicals, shipping and aviation keep pushing demand higher".

"Using a scenario whereby current levels of Opec [Organisation of the Petroleum Exporting Countries] production are maintained, the oil market faces a hard challenge in 1Q18 with supply expected to exceed demand by 0.6m bpd followed by another, smaller, surplus of 0.2m bpd in 2Q18".

The report suggested that over the next two decades, the global energy system would be reshaped by four major forces: the United States as it becomes global oil and gas leader, rapid deployment of renewables, growing share of electricity in the energy mix, and China's new economic strategy taking it on a cleaner growth mode.

IEA said it had cut its longer-term oil price projections from previous year, partly because of the falling cost of both renewable and conventional sources of energy, the worldwide push to tackle climate change and improve air quality and the boom in U.S. shale oil and gas output.

Growth is expected to accelerate to 1.4 million bpd in the last three months of this year, even though mild temperatures and rising prices will restrain demand, the IEA said.

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