A Positive Outlook On Global Growth ? will This be Reflected in Crude Demand Gro

Posted by Flow Ebb on February 26th, 2018

Although oil supply has dominated the market over the past 3 years (supply grew by almost 5m bpd in the two years leading up to 2017, compared to less than 1m bdp growth during oil’s peak 0 days) and is set to remain the most influential market driver in 2018, the impact of demand on prices also warrants some thought. At face value, with the majority of forecasters now agreeing the world is due to enjoy its strongest expansion period since the financial crisis, global oil demand appears to be set to remain positive.

However, once you factor in the current “EV revolution” and governments across the world pushing for a greener energy economy, demand growth is not guaranteed. According to Bloomberg New Energy Finance the growth of EVs will displace 12m bpd of crude, and necessitate 2,700TWh of electricity (15% of 2015’s global electricity demand), by 2040.

Although this global shift away from “dirty” energy is not likely to drastically impact on demand over the course of this year, what is likely to impact demand is high oil prices. As with any commodity, if prices are high buyers tend to abstain in buying in the hope that prices will fall off enabling them to secure a better deal. If too many buyers do this, demand falls off and prices tend to be under pressure. But with China set for continue building its strategic reserves (150m stockpiled in 2017 with a further 130m potentially accumulated over 2018), any significant changes to crude and electricity demand growth are likely to be postponed for a few years.

So what does this mean for prices across the energy sector? Electricity and gas prices are likely to continue to closely track crude prices, with cold weather snaps inevitably leading to tightening gas markets over the winter months, and the longer summer days providing some relief to power prices when days are longer and demand is subdued. Close attention will also have to be paid to the EV sector and the implications charging demand has on consumption patterns.

Metals

• The EV battery revolution – the winners and losers
• China’s crack down on supply – the implications on industrial metals

2017 was a year to be remembered across the board for metals. From the take-off of battery metals for EVs and a mass shift away from diesel cars, to Chinese steel capacity cuts – last year saw the majority of the world’s mining companies relish in bullish metals prices. And 2018 is looking set to be no different.

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