Energy Prospectus

Oil Demand Growth is Outstripping Expectations Says Goldman Sachs

Economic growth is driving a faster than expected rebound in oil demand, with early June figures
suggesting the biggest demand increase in almost two years.
Aug 14, 2017 4:57 AM EDT

Economic growth is feeding through into a faster than expected increase in oil demand in the coming months, with
incomplete figures for June suggesting consumption grew by about 3.1 million barrels, year-on-year, the biggest
gain in almost two years.

Early data, from Goldman Sach's "Oil Demand Tracker" report, indicates that oil demand growth has accelerated in
the past few months in both emerging and developed economies, prompting the investment bank to speculate that
growth in demand could surprise on the upside over the second half.

"Our 2H17 $52/bbl Brent and 3.7% yoy global real GDP growth forecasts lead us to forecast demand growth of
1.60 mb/d in the second half," the report noted. "With recent activity and oil demand levels surprising us to the
upside, we view the risks to our above consensus 1.63 mb/d annual demand growth forecast as skewed to the
upside."

Goldman's bullish demand assessment was supported on Friday by the International Energy Agency, which said it
expected 2017 oil demand growth to weigh in at 1.5 million barrels per day, up from an earlier forecast of 1.4
million barrels per day.

"We believe that the biggest driver for this robust demand is strong economic growth in recent months," noted
Goldman "While strong activity indicators earlier this year were mostly confined to survey data and in the case of
oil further undermined by warm winter weather, our economists' Current Activity Indicators have continued to show
broad based acceleration in the real activity indicators in both EM and DM economies."

Demand growth in emerging markets is being driven by increased spending on domestic gas and gasoline products, an indicator
of increased consumer spending. Developed market demand was mainly coming from the industrial sector, which is likely to
prove a leading indicator for consumer spending in western markets, according to Goldman.

The banks analysis was based on June demand data from the U.S., Japan, India, China, Korea, Brazil, Mexico, Spain and
France, which together account for about 52% of global oil demand.
--------------------------------------------
Oil price cycles end when the smart folks on Wall Street say they are over.

The stronger dollar weighed on oil prices after data on Monday showed that U.S. retail sales rose at a faster than expected rate in July, brightening the outlook for economic growth in the third quarter.

A separate report showed that the Empire State manufacturing index climbed to 25.20 in August from 9.80 the previous month, blowing past expectations for a reading of 10.00. It was the highest level since September 2014.

The U.S. dollar index, which measures the greenback’s strength against a trade- weighted basket of six major currencies, was up 0.74% at 94.03, the highest since July 26. Crude oil is traded in dollars, so when the dollar goes up the price of oil goes down.

Oil prices remain vulnerable to bearish sentiment, with traders assessing supply and demand figures to determine how close the oil market is to rebalancing.

The American Petroleum Institute was to release its latest U.S. inventories report later Tuesday, ahead of official storage figures from the U.S. Energy Information Administration on Wednesday.

A steady decline in U.S. crude inventories over the past two months has helped to support prices.

But doubts remain over how effective production cuts by the Organization of the Petroleum Exporting Countries will be at reducing the global supply glut.