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IEA lowers oil demand growth estimate on rising prices

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IEA lowers oil demand growth estimate on rising prices

The International Energy Agency warned May 16 that a potential supply shortfall from Iran and Venezuela could become a "major challenge" for other big oil producers if they are to fend off sharp price rises and fill the gap and reiterated its readiness to act if needed to ensure a well-supplied market.

The IEA also said the Organisation for Economic Co-operation and Development oil stocks had fallen below the five-year average level in March for the first time since 2014, by 1 million barrels, representing the main benchmark for the success of OPEC/non-OPEC production cuts agreed in 2016 and suggesting potential for a rethink by big producers such as Russia, Saudi Arabia and others.

The total OECD stock figure was down 26.8 MMbbl at 2.82 billion barrels, the lowest level since March 2015.

OPEC's own monthly report on Monday estimated OECD commercial inventories were 9 MMbbl above the five-year average.

In its monthly report, the IEA lowered its estimate for growth in world oil demand this year to 1.4 MMbbl/d from 1.5 MMbbl/d due to higher oil prices, although it said it was confident underlying demand growth "remains strong around the world," citing recent findings from the International Monetary Fund.

It revised upward its demand estimate for the first half of this year, noting a boost from cold weather in the U.S. and Europe early in the year, new U.S. petrochemical facilities and economic growth.

And it still expects global oil demand to top the 100 MMbbl/d mark for the first time in the fourth quarter, with Indian demand in particular accelerating after a bumpy 2017.

However, "the fact is that crude oil prices have risen by nearly 75% since June 2017. It would be extraordinary if such a large jump did not affect demand growth, especially as end-user subsidies have been reduced or cut in several emerging economies in recent years," the IEA said.

The IEA raised its estimate of this year's increase in non-OPEC oil supply to 1.87 MMbbl/d from 1.79 MMbbl/d in its previous report, mainly reflecting the boost to U.S. shale production from higher prices.

Double supply shortfall

But the IEA also said that for the rest of this year the "call" for OPEC crude would be 580,000 bbl/d above the cartel's April output, which it estimated at 31.7 MMbbl/d, and would average 32.3 MMbbl/d. OPEC's production fell by 130,000 bbl/d in April due to the "freefall" in crisis-hit Venezuela and lower output in Africa, the report said.

With Iran facing export barriers following the U.S. decision to pull out of a sanctions waiver, and Venezuela's output potentially falling by several hundred thousand barrels a day more this year, "the potential double supply shortfall ... could present a major challenge for producers to fend off sharp price rises and fill the gap, not just in terms of the number of barrels but also in terms of oil quality," the report said. "For its part, the IEA will monitor developments closely and is ready to act if necessary to ensure that markets remain well supplied."

It noted that Iran's crude and condensate production combined amount to almost 5% of world oil supply, at 4.8 MMbbl/d, and estimated the country was currently exporting 2.4 MMbbl/d of crude to world markets.

U.S. oil supply in February rose by 345,000 bbl/d on the month to a record 14.3 MMbbl/d, including crude and condensate, and is set to average 14.8 MMbbl/d for the year, reaching 15.4 MMbbl/d in the fourth quarter, the IEA said as it revised upward its U.S. numbers for last year and this year.

The IEA's estimate of OPEC's April crude production was almost 300,000 bbl/d lower than the estimate in OPEC's own report, which is based on secondary sources, of 31.9 MMbbl/d.

This article was written by Nick Coleman, who is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.