OPEC said Monday that oil production by countries outside the exporters' organization was now expected to rise in 2017, revising its previous expectations of a drop. In its monthly report, the Organization of the Petroleum Exporting Countries said Kazakhstan, Norway and Britain were now all expected to produce more next year than forecast earlier. This means production outside the cartel is expected to rise by 200,000 barrels per day, against previous projections of a 150,000 b/d decline. Global oil demand is projected to continue growing. For 2016, non-OPEC oil supply is still projected to contract, by 610,000 barrels per day, a drop however slightly smaller than previously expected. "This has been mainly due to a lower-than-expected decline in US tight oil and a better-than expected performance in Norway, as well as the early start-up of Kashagan field in Kazakhstan," OPEC said. OPEC, which does not forecast supply by its own 14 members, said it saw world oil demand growth rising by 1.23 million b/d this year. World oil demand is also expected to rise in 2017, it added. "The main growth centers for next year continue to be India, China and the US," the report said. Oil prices tumbled again Monday in Asian trade on a pick-up in drilling and a strong dollar as speculation swirled that the US Federal Reserve could hike interest rates as soon as this month. Producers have been hurt by plunging oil prices for around two years due to a stubborn supply glut. Crude prices have been slashed from around $100 in mid-2014 to 13-year lows of below $30 at the start of this year. Traders are now fixed on a meeting of OPEC countries and non-organization member Russia in Algeria later this month. Some producers hope the talks will lead to a freeze in production that would boost oil prices. Officials from Russia and OPEC kingpin Saudi Arabia have sought to soothe concerns ahead of the talks in Algiers. A previous attempt at a production cap in April was derailed by Iran, which refused to join in talks as it ramps up output after the lifting in January of years of nuclear-linked sanctions. Iran briefly triggered a spike in prices late last month when it announced it would participate in the meeting. The trend of the past years' moderate global growth is likely to continue in both 2016 and 2017. World GDP growth now is forecast at 2.9% for 2016 and 3.1% for 2017. After particularly low growth in the first half in the US and Japan, along with the continued contraction in Russia and Brazil, these economies are expected to pick up in the remainder of the year and to show higher growth in the coming year. The Euro-zone, the UK, China and, to some extent, India are forecast to show lower growth. There are several key dynamics across the globe that are significant in the short-term. There is a considerable negative impact on global growth from the energy sector due to the sharp decline in investments, mainly in the oil and gas sector as well as lower output values. So far this has not been entirely compensated by positive effects from consumption. Any stabilization in the crude oil market in coming months could provide positive support to overall economic activity. Furthermore, interest rates are already low in major economies and the effectiveness of further monetary stimulus has diminished, despite remaining crucial for some economies. Here, any decision from main central banks on monetary policies, particularly the US Fed, will continue to be influential. Moreover, in most key economies the space for fiscal stimulus seems to be limited given high debt levels. Finally, political developments are becoming increasingly relevant – ranging from elections in several countries to fiscal policy decisions, as well as the implementation and possible impact of Brexit. Within the OECD group of countries, US growth is forecast to stand at only 1.5% in the current year impacted by the decline in the energy sector and other factors that are being considered to be temporary, while next year is forecast at 2.1%. Despite a considerable sovereign debt level, Japan has recently announced a fiscal stimulus plan; however, the impact will be felt only in the coming quarters, following very weak economic output in the 1H16. Still, this is only expected to lift growth to 0.7% this year and 0.9% in 2017. The rise in the value of the yen, persistent deflation, a tight labor market and lackluster domestic aggregate demand will continue to drag growth. In the Eurozone, the challenges are manifold. The weak banking sector – impacted by non-performing loans – in combination with political uncertainty, the consequences of Brexit, ongoing high unemployment and the lessening effect of the ECB's monetary stimulus will push growth down to 1.2% in the coming year, from 1.5% in 2016. In the emerging economies, India and China continue to expand at a considerable rate of 7.5% and 6.5% respectively in 2016, a slightly higher rate than in the coming year, when growth is forecast at 7.2% and 6.1%. Domestic consumption, investment and governmental support have been key drivers in these two economies, factors that are forecast to continue supporting growth also in 2017. Both Russia and Brazil are forecast to remain in recession for a second consecutive year in 2016. In 2017, Russia is expected to recover with growth of 0.7%, while Brazil is forecast to grow by 0.4%, provided the political environment stabilizes allowing economic reforms to be implemented. Further improvements in commodity prices should also help to support global growth. Despite moderate global economic growth, recent data shows better-than-expected oil demand in some of the main consuming countries. This, along with a potentially improving oil supply picture, would contribute to a reduction in the imbalance of market fundamentals in the coming months.
