Risks to global growth remain, crude prices rally may not last – OPEC

LONDON (ICIS)–The outlook for international economic growth remains subdued, but the emergence of some positive signals led the Organization of Petroleum Exporting Countries (OPEC) holding its 2016 global GDP forecast at 3.1%, the oil production cartel said on Monday.

In the eurozone, the cartel of crude oil producing countries said the positive growth momentum observed in the first quarter and in part of the second is likely to be “slightly more muted” in the second half of the year, adding the UK’s referendum on 23 June about its permanence in the EU stands as a key uncertainty.

In a pattern observed during past years, US growth is likely to strengthen in the second half of the year following a weak first quarter, said OPEC, while China will follow the opposite path with its growth expected to slow somewhat from the pace seen in the first half of the year.

Japan might suffer the same fate, said the Vienna-based organisation, with the country’s relatively robust trend of growth estimated for the first half of the year not forecast to improve further from its current levels.

Prospects are expected to improve slightly for the two key emerging markets expected to contract this year, Russia and Brazil, OPEC said, while strong growth for India will continue for the rest of 2016.

“Further improvements in Russia’s economy are expected, supported by rising commodity prices, including for oil and gas,” it said.

“Brazil remains in a challenging situation, although an improving domestic situation, together with higher commodity prices leading to a positive net balance of trade, could contribute to a better performance in 2H16 [second half of 2016].”

However, the current projections for global growth could be derailed by “country-specific economic challenges” as well as geopolitical risks which could spill over into the real economy, said OPEC, while pointing at the world’s economy vice for stimulus from central banks.

“Central bank policies will also continue to constitute an influential factor amid lower global inflation,” it said.

Although OPEC kept its global crude demand and supply forecasts unchanged from the Monthly Oil Market Report published on 13 May, the organisation said the current spike in prices observed during past weeks – attributed to shutdowns in Nigeria and Canada – may not stick, as the global crude overhang remains high.

“As the month ended with prices near $50/bbl, speculators cut long positions on worries that the current rally may not stick amid a global glut of oil,” said OPEC.

“The Brent-WTI [international and US crude referential benchmarks] spread narrowed significantly on a decline in US crude inventories, a continuing decline in US production, and the aftermath of wildfires in Alberta, Canada. The Brent-WTI spread averaged $0.85/bbl in May, down from $2.21/bbl in April.”