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IEA lowers 2018 oil demand growth estimate to 1.4 million b/d on higher prices


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2018 demand growth estimate lowered to 1.4 million b/d

'Steep stock draws' seen even at current OPEC output

London — The International Energy Agency warned Wednesday a potential supply shortfall from Iran and Venezuela could become a "major challenge" forother 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 adequate supplies.

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The IEA also said OECD 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 raising pressure for a rethink by those behind the cuts, chiefly Russia and Saudi Arabia.

Related feature -- Iran Sanctions: Global Energy Implications

The total OECD stock figure was down 26.8 million at 2.82 billion barrels, the lowest level since March 2015, the IEA said in its latest monthly report.

Market reaction to the report was muted however, following indications earlier of rising US crude oil stocks from the American Petroleum Institute.

Also mitigating the IEA's concern, it unusually lowered its estimate for growth in world oil demand this year, by 30,000 b/d to 1.44 million b/d, to reflect the effect of higher oil prices on consumption, although it said it was "confident" of underlying demand growth around the world, citing economic findings from the International Monetary Fund.

Its new estimate included an upward revision for the first half of the year as a result of cold weather in the US and Europe and new petrochemical capacity in the US.

Lower OPEC output and lower demand prospects were also accompanied by an upward revision to the IEA's US oil supply estimate, as shale drillers received a boost from higher prices. It raised its estimate of this year's increase in non-OPEC supply by 80,000 b/d to 1.87 million b/d.

"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.

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

IEA supply-demand highlights

The IEA estimated OPEC's April output at 31.65 million b/d, a 130,000 b/d fall after a 250,000 b/d fall the previous month, highlighting Venezuela's "freefall" and lower African production.

With non-OPEC supply set to keep pace with an upward revision in demand for the current quarter, the gap between OPEC supply in April and the call on OPEC in the current quarter will be 750,000 b/d.

Continued US production increases and weaker demand will slightly reduce the call on OPEC in the second half of the year, with the 'call' averaging 32.25 million b/d for the remainder of the year, down from a forecast call in the previous report of 32.5 million b/d for the remainder of the year.

However, the IEA said it remained concerned at the prospect of further sharp falls in Venezuelan production and the potential for reductions in Iranian exports as the US sanctions regime is reimposed.

"From now through the end of the year, the call on OPEC stands an average 580,000 b/d above April output, implying steep stock draws should OPEC crude output remain at current levels," the IEA said Wednesday.

With Iran facing export barriers following the US 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 million b/d, and estimated the country was currently exporting 2.4 million b/d of crude to world markets.

US oil supply in February rose by 345,000 b/d on the month to a record 14.34 million b/d, including crude and condensate, and is set to average 14.82 million b/d for the year, reaching 15.39 million b/d in the fourth quarter, the IEA said, as it revised upward its US numbers for last year and this year.

The IEA's estimate of OPEC's April crude production was almost 300,000 b/d lower than the estimate in OPEC's own report, which is based on secondary sources, of 31.93 million b/d.

--Nick Coleman,

--Edited by Alisdair Bowles,