In early October, the International Energy Agency (IEA) reduced its forecast for global oil demand on slower economic growth projections from the International Monetary Fund (IMF). The IEA cut 100,000 barrels per day from its revised 2013 demand outlook and is now projecting 90.5 million barrels per day in 2013, a 0.8% increase over 2012 demand of 89.7 million barrels per day.

Hart Energy’s global GDP forecast is similar to the IMF’s outlook. Our forecast calls for 3.1% growth versus 3.3% for the IMF. Yet, our methodology for calculating GDP growth is different in the sense that we do not try to determine currency movement. Hence, it can be inferred from our forecast that we see a stronger U.S. dollar in 2013 and weaker commodity prices.

How does this translate into oil demand growth? Hart Energy’s World Refining & Fuels Service forecast 2013 global oil demand of 91.3 million barrels per day, or about 1.4% year-over-year growth.

While Hart Energy identified positive economic momentum building through the third and fourth quarters of 2012, there are more downside risks to our forecast than previous years. Our base assumption is that advanced economies used monetary and fiscal stimuli to end the Great Recession; but while growth accelerated quickly in 2010, the last two years of below-trendline growth can be considered as payback. Simply put, fiscal stimulus is off the table in most advanced countries due to debt overhang, and slower-than expected job creation hasn’t provided a tax base conducive to grow government revenue, re-stock coffers or pay down debt.

insights

Looking into our crystal ball for next year, the region with most downside risk is North America, due to the U.S. “fiscal cliff.” Resulting from Congress’ battle to raise the debt ceiling, the Budget Control Act of 2011 would require that the White House reduce 2013 government spending by an estimated $110 billion at a time when the Bush-era tax breaks end. A combination of spending cuts and tax increases will need to be negotiated between the White House and Congress that heretofore haven’t been amenable to compromise.

The U.S. Congressional Budget Office (CBO) projects that a non-negotiated combination of higher taxes and lower spending could pull some $560 billion from the economy and reduce GDP growth by 3%. Our U.S. growth expectations are modest at 2.1%. A fiscal cliff scenario would significantly impact global GDP by cutting our projections in half, given expected contagion associated with a U.S. recession.

If the administration and Congress shelved the Budget Control Act of 2011, also unlikely, GDP growth could accelerate as high as 4% given a recovering housing market and a third round of quantitative easing by the Federal Reserve chairman. U.S. politics will have an exceedingly large impact on global growth this year.

Europe also offers more downside risk to our global GDP growth outlook. While contributing absolutely nothing to global GDP growth in 2012, Europe will contribute modestly in 2013. Monetary aggregates are signaling positive growth, but politics could also dampen animal spirits.

Asia-Pacific appears to be the most stable region that could provide an upside surprise to GDP growth. Given lower demand growth from advanced countries, China is looking to its domestic market to maintain high growth rates. This transition is not happening quickly, but it could turn the corner sometime next year.

Our oil price forecast calls for lower prices in 2013 versus 2012. On an annualized basis we expect prices to average between $79 and $87 per barrel. Of course, aboveground constraints in oil-producing countries could take supplies off the market and send prices higher. We think that elevated prices will be met by increased Saudi supplies, with incremental volumes of North American heavy and light oil production in the background.