World oil demand to rise 1.5 mbd in 2018: BofAML

Global oil demand is likely to rise by 1.5 million barrels per day (mbd) this year and 1.3 million bpd in 2019, as major economies remain in an expansion mode despite Brent prices rising, Bank of America Merrill Lynch (BofAML) said on Sunday.

"For now, the global recovery in oil demand has been broad-based across regions and economic sectors, and also unyielding to rising prices," BofAML said in a report.

"Most key OECD economies are gobbling up a lot more barrels than last year and the same is true across emerging markets (EMs), except for the Middle East," it noted.

That said, the majority (about 90 percent) of global oil consumption growth this year will likely originate in developing economies.

In emerging markets, oil consumption growth is relatively steady, with consumption growth averaging 1.4 mbd this year, compared to 1.2 mbd last year and 1.4 mbd in the prior 10 years.

However, BofAML noted three key risks to oil demand growth in emerging markets over the next few months: tightening monetary conditions in China, partly due to higher global rates; rising protectionism, which poses a risk to global trade; and oil prices in local FX surging to near 2014 highs in some economies.

“With the global economy on a cyclical upswing, how the battle between the price and income effects on oil consumption plays out is crucial,” the bank said.

After all, the highest growth in oil demand worldwide is in countries that are more vulnerable to increases in oil prices like India, China, Turkey, or the Philippines, it added.  

In turn, economies with the highest price elasticity of oil demand are also heavily exposed to a global trade and interest rate shock, the report said.

“Thus, while we reiterate our projected path to lower OECD oil inventories by Q4-18, we still see Brent prices capped at $80/bbl near-term,” BofAML concluded.