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IEA sees stagnant global oil demand met by rising supply through 2020

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IEA sees stagnant global oil demand met by rising supply through 2020

The International Energy Agency held its global oil demand outlook unchanged for 2019 and 2020, anticipating a calming in the economic climate and trade disputes that trimmed demand in the first half.

Global oil demand growth forecasts of 1.1 million barrels per day for 2019 and 1.3 million bbl/d for 2020 are backed by a modest 500,000 bbl/d demand increase in the first half, and the anticipation of a significant year-over-year gain in the second half, the IEA said in its latest Oil Market Report released Sept. 12. Global oil demand growth fell as low as 200,000 bbl/d in June but increased 1.3 million bbl/d year over year in July, with support from rising petrochemical capacity.

A drop in refining activity bottomed out in July and throughput is set to return to year-over-year growth in the fourth quarter, the IEA said. The agency warned, however, that increased activity may depress refining margins, which are now at the highest levels of 2019.

Preparations for the International Maritime Organization's new fuel emission standards are expected to offer support as prices for compliant fuels strengthen, the IEA said. Beginning Jan. 1, 2020, the marine sector will have to reduce sulfur emissions by over 80% by switching to lower-sulfur fuels. The current maximum fuel oil sulfur limit of 3.5% will fall to 0.5%. The IEA anticipates little disruption from the introduction of the regulations.

Stagnant global oil demand will be met by rising supply, as non-OPEC supply growth is forecast to increase from 1.9 million bbl/d in 2019 to 2.3 million bbl/d in 2020. The U.S. global crude oil supply was up 530,000 barrels per day in August to 100.7 million bbl/d, the IEA said.

In a separate report released alongside the monthly report, the IEA said so far in 2019 U.S. crude oil production growth has stalled, with June output only 45,000 bbl/d higher than in December 2018. Still, output is growing on an annual basis, rising this year by 1.25 million bbl/d, with 1 million bbl/d of growth to come in 2020.

Norway and Brazil also saw significant supply-side gains, the IEA said. Projects in Norway are coming online earlier than anticipated and could ramp to peak production ahead of schedule. In Brazil, oil production reached 3 million bbl/d in August, 400,000 bbl/d higher than two months earlier.

Demand for OPEC crude oil will sink as a result of non-OPEC gains. OPEC crude oil demand is forecast to fall 1.4 million bbl below the group's August output to 28.3 million bbl/d in the first half of 2020, the IEA said.

The IEA said data from August show OPEC compliance with the OPEC+ agreement slipped to 116%. Russia, Nigeria and Iraq each produced 600,000 bbl/d more than their allocations. Saudi Arabia produced 600,000 bbl/d less than allowed and was the "linchpin of the whole deal," the IEA said.

In July, OPEC and other allied major oil producers agreed to extend crude oil production cuts for nine months.

The IEA's market balances for the second half imply a stock draw of 800,000 bbl/d, based on the assumption of flat OPEC production, stronger demand growth, and weaker non-OPEC supply growth. As non-OPEC supply surges in the second half, market balance will return to a significant surplus, placing pressure on crude oil prices, the IEA said.

After falling to seven-month lows in August, ICE Brent and NYMEX West Texas Intermediate crude oil are currently trading at $61/bbl and $56/bbl, respectively, still 20% below year-ago levels.

OPEC faces a daunting challenge through 2020 to manage the market, the IEA said.