In November of last year, BofA expected global oil demand to grow by 0.95 million b/d in 2013. Now this number is revised down to 0.8 million b/d on slightly weaker than expected consumption in Europe and China. In addition, BofA also cut down the 2014 projections for global oil demand growth for 2014 to just 1.2 million b/d mostly on slightly weaker EM growth. Yet, while demand has turned out to be softer than analysts previously anticipated, oil supply growth is running at a faster pace.
Supply to grow faster this year
Non-OPEC supply is expected to grow by 820 thousand b/d this year and 910 thousand b/d next year, compared to 700 and 815 thousand b/d previously. Since November, US oil output alone has exceeded even our optimistic forecasts by 400-500 thousand b/d in 4Q12 and 1Q13, although production in some other nonOPEC countries has continued to disappoint. In sum, the combination of lower demand and higher supply could tilt the market into a small surplus over the next 18 to 24 months.
Brent forecast lowered to $103 in 2H13, $105 in 2014
Lower global oil demand, rising supplies and higher inventories are a cocktail for lower prices. Thus, BofA lowered its Brent crude oil price forecast to $103/bbl in 2H13, from $111/bbl prior. This weakness is expected to persist into 2014. Now it seems that oil prices will also fail to push much higher next year, and BofA reduces the 2014 average Brent crude oil forecast to $105/bbl from $112/bbl.
No change to WTI, but downside risks remain
The second half of 2013 and 2014 central projections for landlocked WTI crude oil are so far unchanged at $91 and $92/bb respectively. Even then, there are way too many barrels in commercial and strategic storage in the US, and there is still a risk of $50/bbl for the Oklahoma grade at some point over the next 24 months on the back of potential midstream and downstream bottlenecks.
BofA sees a growing chance of $90-$100/bbl Brent in 2015-20
Looking farther out and less of a structural oil market deficit on softer emerging markets activity and the rise in non-conventional oil supplies. There is a growing chance that Brent will move down structurally to a $90-100/bbl band after 2014. This price range is in line with the bank’s equity research team’s long term oil price assumption of $100/bbl and a forward Brent price of $90/bbl in December 2017.
