Expected sector trends

Expected
sector trends




 

Analysts foresee a rise in average crude Brent prices of 10 dollars/barrel for 2017 and 2018, to 57 and 65 dollars/bbl, respectively.



 

According to the International Energy Agency (IEA), natural gas will account for 24% of the energy mix by 2040.

Short-term projections for the energy sector

According to the International Energy Agency (IEA), in the short term the supply-demand balance will be determined mainly by the production-cut agreement signed by OPEC and a number of non-OPEC countries.

For 2017, the IEA predicts a recovery in non-OPEC oil production of 360,000 barrels a day, almost all of which would be accounted for by the United States, Brazil, Kazakhstan, and Canada. The market will be keeping a close eye on OPEC's fulfillment of its production-cut commitments. This will have a direct impact on the listed price of crude oil.

The increase in demand will continue to be driven by non-OECD countries, with 1.32 billion daily barrels predicted for 2017, while variation will be almost null for OECD countries.

This scenario entails an increase of 0.7 billion daily barrels in terms of OPEC crude oil needs and inventory variations of up to 32.93 billion daily barrels for 2017. The production-cut agreement reached by petroleum-exporting countries at the close of 2016 will therefore result in a market deficit in 2017. This would help reduce the large inventories that have been accumulated over the past two years.

With respect to the short-term evolution of crude prices, analysts agree that the average crude Brent price for 2017 and 2018 will rise to about 10 dollars/bbl both years, until reaching 57 and 65 dollars/bbl, respectively.

In terms of the evolution of US gas prices in the short term, the balance adjustment begun in 2016 is expected to continue in 2017. Here, the two key questions will be: first, production trends and second, the pace at which the demand not linked to temperature regulation is consolidated: industrial demand chiefly in the form of new petrochemical, fertilizer, and methanol plants, and exports (international liquefied natural gas [LNG] exports and those via Mexico's pipelines). With respect to production, though we may witness an increase in dry gas production owed to investment recovery, we should see a more significant increase in demand. This would maintain prices in the vicinity of 3$/mmBtu.

 



Long-term projections for global primary energy consumption


Created with Highstock 5.0.913.684 Mtep / 201431%31%21%21%29%29%10%10%1%1%5%5%3%3%
Petróleo
Gas Natural
Carbón
Biomasa
Otras
renovables
Nuclear
Hidroeléctrica

 


Created with Highstock 5.0.917.865 Mtep / 204027%27%24%24%23%23%10%10%6%6%7%7%3%3%
Petróleo
Gas Natural
Carbón
Biomasa
Otras
renovables
Nuclear
Hidroeléctrica

 

Long-term projections for the energy sector

Hydrocarbons supply more than half the primary energy consumed worldwide. Specifically, petroleum accounts for 31% of global primary energy consumption, representing the most widely used energy source.

No significant changes are expected over the coming years. In its 2016 World Energy Outlook base scenario, the International Energy Agency (IEA) predicts that, in comparison to 2014, petroleum use will be reduced by 5 percentage points by 2040. Natural gas will account for 24% of energy use, over a total energy demand estimated at 17.934 billion tons of oil equivalent.

 

Macroeconomic projections

In 2016, the global economy maintained a moderate growth rate, expanding by 3.1%, one tenth less than during 2015 and three tenths below what was predicted by the IMF at the beginning of the year. Global economic growth has however shown greater dynamism in recent months, offering brighter outlook and suggesting an improvement in short-term risks. Thus, the latest predictions made by the IMF (IMF WEO, April 2017) estimate that global growth will accelerate, from the 3.1% reported in 2016, to 3.5% in 2017 and 3.6% in 2018. These improvements would be driven by both developing and emerging economies.

It is estimated that the growth of developed economies will go from the 1.7% reported in 2016 to 2.0% in 2017 and 2018, and that their internal demand will increase in a context where the private deleveraging phase is already advanced and tax policy is generally more expansive. In this connection, even though the public debt remains high, a decrease in interest rates, resulting in part from lax monetary policies, have created a margin for a change in tax policy.

In the United States, growth was of a moderate 1.6% in 2016 owing to a disappointing first half of the year (though chiefly because of transitory factors). Investment was halted after being struck by adjustments in the energy sector and because of weakened industrial activity. The accumulation of inventories also created a drain on growth in 2016. However, commercial activity was solid as of the third quarter of 2016, thanks to robust private consumption. In addition, the new government plans on implementing important fiscal incentives. It is estimated that, in this economy, commercial activity will rise to 2.3% in 2017 and 2.5% in 2018. This has led the Federal Reserve to take further steps in its gradual monetary tightening and to raise interest rates at the meetings held in December and March.

The Eurozone continued to recover in 2016 and reported growth of 1.7%. Dynamic economic growth continued through the first quarter of 2017. Commercial activity is being favored by low crude prices, lax financial conditions, a weaker euro that drives exports and changes that point towards a more expansive fiscal stance. During its last meeting of 2016, the ECB decided to extend the asset purchase program until December of 2017 and to reduce the volume of purchases to 60 billion euros a month as of April. The electoral results in Holland and, most importantly, France, spell support for European institutions.

In 2016, the Spanish economy grew by 3.2% for the second consecutive year, a rate far higher than those reported by the Eurozone as a whole. The favorable evolution of the labor market and increased market confidence are the factors that explain this differential growth. Spain's economic growth is robust, with marked growth in not only internal demand but also exports. The positive evolution of the labor market is reflected in the fact that, in 2016, 414,000 jobs were created and the unemployment rate dropped by 2.3 percentage points, ending at 18.6% at year's end.

Economic growth exceeded expectations in the first quarter with an increase of 3.0%. This has led the Spanish government to review its official prediction for 2017, raising it to 2.7%, in step with the latest predictions published by the IMF. There are analysts in the consensus forecast panel, however, who are already anticipating a growth rate of 3% for 2017.

The government foresees an average growth rate of 2.5% for the next three years and for this trend to continue generating employment, at a pace of 500,000 jobs per year. Though these predictions vary, analysts foresee a structural change in Spain's economic growth, as the export of goods and services is gaining in importance, reaching 33% of the GDP. This has not only resulted in a current account surplus, with a 3% growth rate over three consecutive years, but also in a lowering of our foreign debt, during a stage of economic growth.

All the while, after five years of deceleration, emerging economies are showing recovery thanks to different factors: (I) the stabilization of the Chinese economy and the end of Brazil's and Russia's economic crises; (II) some recovery of raw material prices and, as a result of this, of investment in the sector; (III) the return of capital inflows, which was initially favored by very low interest rates in advanced economies. After experiencing a 4.1% growth rate in 2016, emerging countries are expected to expand by 4.5% in 2017 and 4.8 in 2018.

These improvements in global commercial activities, synchronized with the company's different areas, appear more robust and also contribute to improving trade and expected inflation rates, albeit to a small degree. This has a feedback effect: the recovery of expected inflation rates, a phenomenon in part connected to the change in crude price trends, allows for the recovery of the nominal GDP that is greater than that of the real GDP, offering brighter perspectives for sales and company benefits, a process which in turn encourages investment.

Generally speaking, therefore, downside risks related to global growth have decreased. However, new risks that could affect us in the mid-term have come to the fore. Brexit and Donald Trump's victory in the United States express a tendency to question the benefits of globalization and trade liberalization policies. Underlying these trends is discontent over rising inequality and the still-perceptible effects of the financial crisis. Increased protectionism, however, would burden international trade and apply downward pressure on commercial activities, particularly in a number of emerging countries that are more dependent on external demand. In addition, China's economic rebound has been sustained by more substantial spending on infrastructure and high credit growth, processes that could ultimately increase the country's financial risks.