The article below appeared in the September 14th, 2016 edition of Natural Gas Daily, a specialist newsletter published by Interfax, focussed on the global natural gas and LNG industry.
The International Energy Agency (IEA) has said that the pace of global oil demand growth is dropping more quickly than initially predicted. In its latest monthly outlook, the agency lowered its forecast for oil demand growth in 2016 by 100,000 barrels per day, to 1.3 million b/d. It forecast the growth rate would be even lower in 2017, at 1.2 million b/d.
With OPEC producers pumping at close to record-high levels, the stock overhang that has stymied oil price rallies in recent months looks set to continue. Non-OPEC production has been dropping because of low prices, but not by enough to eat into bloated inventories. The IEA estimated that oil inventories in OECD countries hit a new record high in July, of 3.1 billion barrels, a rise of 32.5 million bbl from the previous month.
Oil prices rallied from four-month lows of around $41.50/bbl in early August to a high of $51.22/bbl on 19 August as peak summer demand for oil for transport kicked in. But the rally has faltered, and Brent futures currently stand at around $47.50/bbl. The northern hemisphere summer is usually a time when more oil is consumed – especially in the United States, where motorists guzzle nearly 10% of the oil used globally.
The IEA said OPEC crude production nudged higher in August, to 33.47 million b/d. This was 930,000 b/d above levels seen earlier in the year and was led by Middle East producers pumping at full throttle. The IEA said Kuwait and the United Arab Emirates hit their highest-ever output and Iraq also increased supplies.
Saudi Arabia and Iran have each raised their output by more than 1 million b/d since late 2014, when OPEC shifted its strategy to defend its market share rather than protecting prices. Saudi output has almost reached a historic peak while Iran has also reached a post-sanctions high. As Saudi Arabia had planned, the surge in its production has stolen market share from US shale producers. However, the slowdown in US shale production has been slower than expected as a result of lower costs and higher well productivity.
In its latest monthly report, which was issued on Monday, OPEC said that losses in non-OPEC supply would be less than expected in 2016, falling by 610,000 b/d rather than the 800,000 b/d decline it predicted earlier in the year. Additionally, it reported that non-OPEC production in 2017 would be 200,000 b/d higher than 2016 levels and that OPEC production of NGLs would rise by 150,000 b/d in 2017, to 6.43 million b/d. The OPEC report said third-party sources estimated its members pumped 33.24 million b/d in August, close to the recent production peaks.
The IEA’s own supply estimates are broadly similar to those of the oil cartel. The IEA expects non-OPEC supply to drop by 840,000 b/d this year, with high-cost producers hit particularly hard. However, growth will resume in 2017, with the IEA forecasting a 380,000 b/d year-on-year increase in oil production. Output gains are expected because North Sea fields that were shut for summer maintenance have now been brought back to full production, while Kazakhstan’s Kashagan field will also start producing again after extensive repairs. Eni has forecast production will recover to 360,000 b/d in 2017, above the level anticipated by the Kazakh government, the Financial Times reported.
“Supply will continue to outpace demand at least through the first half of next year,” the IEA said. “Global inventories will continue to grow […] As for the markets’ return to balance – it looks like we may have to wait a while longer.”

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