IEA Cuts Demand Forecast

Jim Brown
 
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The IEA followed the trend set by OPEC when the IEA released its Oil Market Report for last month. The IEA cut demand growth estimates but they still predict growth.

The IEA cut demand estimates for 2011 by a whopping -200,000 bpd and by -400,000 bpd in 2012. The cuts came on expectations for slower economic growth in Europe, forced austerity and a lagging recovery in the USA. The demand for 2011 is now estimated to be 89.3 mbpd followed by 90.7 mbpd in 2012. Despite the sizeable cuts to overall demand estimates that still represents an increase for 2011 of 1.04 mbpd and another increase of 1.42 mbpd in 2012.

The IEA cut its estimates for demand growth by -160,000 bpd for 2011 and -190,000 bpd for 2012.

World oil supply rose +1.0 mbpd in August thanks to an increase in non-OPEC production by +800,000 bpd. U.S. and Latin American production rose and offset heavy maintenance scheduled and field shutdowns in the North Sea. However, non-OPEC supply has been revised lower to 52.8 mbpd in 2011 due to outages in the Middle East and China. It is expected to rise to 53.8 mbpd in 2012.

Global GDP growth is now expected to be 3.9% for 2011 and 4.2% in 2012 thanks to the emerging markets but there are significant downside risks to the forecast. OPEC and the IEA adjust their forecasts every month so any pickup in economic activity would immediately add to the demand estimates.

OPEC production for August rose by +165,000 bpd to 30.26 mbpd. That is still well below the "call" for OPEC crude of 31.3 mbpd for Q3. They did say the Q4 call has been lowered slightly by -200,000 bpd to 30.5 mbpd due to weaker demand. The IEA expects Libyan production to average 300,000 bpd in Q4.

In July OECD crude inventories rose by 10.8 million barrels to 2,687 million barrels or 58.4 days of demand. Inventory levels fell below the five year average for the first time since the 2008 recession. In August inventories were flat with only a +600,000 barrel gain for the entire month.

In the EIA inventory report due out on Wednesday morning analysts are expecting a decline in crude of -2.9 million barrels. The BOEMRE estimated that more than five million barrels of production was lost due to tropical storm Lee. More than 64% of the production platforms in the Gulf of Mexico was shut in for 3-6 days.

The API inventory report released Tuesday night showed a decline of -5.05 million barrels while gasoline supplies rose by 2.76 million barrels.

Crude prices continued to hover over $89 for WTI in overnight trading after pushing over $90 intraday. The confusion over Europe and the potential for Libyan production returning is weighing on the market. A Libyan official said one field was back up to 125,000 bpd compared to its pre revolution levels of 160,000 bpd. However, much of that oil would be directed to the restart of the Libyan refineries in order to produce much needed gasoline and diesel for use in Libya. The IEA believes it will take 18-24 months to return Libya back to full production.

Jim Brown

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