NK’s potential to disrupt oil market
NORTH KOREA is not at the centre of the oil market. In fact, the country produces almost no crude oil, has two barely functioning refineries and is believed to import a tiny volume of around 15,000 barrels daily (b/d) of crude oil and some refined products from China.
But oil market watchers cannot ignore Pyongyang’s increasingly aggressive stance for the impact it could have on oil demand – a crucial variable in rebalancing the markets.
South Korea has already raised the alert, saying that the impact of North Korea’s sixth nuclear test could spread to the real economy, which could dent oil demand. Additionally, an escalation of tensions between the United States and China on this issue could also have trade and economic repercussions.
With oversupply continuing to cast a shadow on the markets, stocks and demand offer a glimmer of hope, said the International Energy Agency in its latest monthly oil report released in August.
The IEA said that though storage of surplus OECD oil has declined and stocks are now below 2016 levels, they remain 219 million barrels above the five-year average. Even if stocks fall by half a million barrels per day as demand growth outpaces growth in supply, stocks will still be about 60 million barrels above the five-year average by March 2018, according to the Paris-based agency.
This underlines the importance of demand in rebalancing. IEA forecasts demand growth of 1.5 million b/d in 2017 and still relatively strong demand growth of 1.4 million b/d next year.
But with stocks still stubbornly high and non-OPEC production growth showing no signs of abating – according to the IEA, non-OPEC output is expected to grow by 1.4 million b/d in 2018 and that could wipe out gains from a growth in demand – it remains to be seen if simply an extension of the current agreement by producers to limit production will be enough. Or will the producer group have to deepen the production cuts to speed up rebalancing?
Contributed by MRIGANKA JAIPURIYAR, associate editorial Director, Asia & Middle East Energy News & Analysis
