If you watched the video in my last newsletter (link at top of page 3), you know that the OECD inventories do not reflect the over-supply that IEA has been reporting all year. - Dan
OECD Commercial Stocks See First Draw in Seven Months
Draw on commercial stocks in October is not the start of a trend, but fears of reaching capacity are overstated: IEA
The Organization of Economic Cooperation and Development saw commercial stocks of crude oil draw down for the first time in seven months, according to the International Energy Agency’s (IEA) December Oil Market Report. Commercial stocks stood at 2,971 MMBO at the end of October.
While the draw comes as welcome news for markets that have remained critically oversupplied during the last year, the IEA believes that inventories will continue to build until late 2016, although at slower rates than seen this year. Fears of reaching “the top of the tank” in storage remain overstated, however, said the IEA, with new and spare storage expected to absorb the projected extra 300 MMBO of stocks.
Oil demand expected to moderate as supply continues to grow
The IEA maintained its expectation that world crude oil demand would grow by 1.2 MMBOPD in 2016, down from a peak of 2.2 MMBOPD of growth in Q3’15. Early indicators for Q4’15 show growth easing into next year’s target at about 1.3 MMBOPD of year-over-year growth. Overall demand growth for the year is expected to stand at 1.8 MMBOPD led by China, the U.S., and – somewhat surprisingly – Europe.
Global oil production continued to trend higher, with 50 MBOPD added in November, bringing total global production to 96.9 MMBOPD. The growth in global output was largely led by OPEC, which hit a three-year high level of production at 31.695 MMBOPD. OPEC’s increased production came almost entirely from Iraq, which offset losses in other member countries, including Saudi Arabia, with a 247.5 MBOPD increase in production.
OPEC’s decision during its bi-annual meeting earlier this month to remove its production quotas altogether sent oil to a seven-year low. The move signals disunity within the group as some members lobbied at the meeting to lower the old production cap in order to raise prices.
“OPEC’s decision to scrap its official production ceiling and keep the taps open is a de facto acknowledgement of current oil market reality,” said the IEA report. “The early December move appears to signal a renewed determination to maximize low-cost OPEC supply and drive out high-cost non-OPEC production – regardless of price.”
Non-OPEC supply held steady at 58.5 MMBOPD, according to the IEA, but annual growth slowed to below 300 MBOPD from 2.2 MMBOPD at the start of 2015.
Global refinery runs rose by 1.4 MMBOPD in November to 79.9 MMBOPD as the maintenance season drew to a close, reports the IEA. Margins were down slightly, but still strong, said the agency. Lower crude oil prices have driven demand for gasoline higher.
OECD inventories drop
OECD inventories drop
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: OECD inventories drop
Summary of IEA's Oil Market Report: https://www.iea.org/oilmarketreport/omrpublic/
My take is that IEA's forecast that demand growth will slow (from 1.8 million barrels per day in 2015 to 1.2 million barrels per day in 2016) is too conservative. IEA's forecast assumes that demand growth will return to the historical trend. I believe that today's very low prices for refined products, especially transportation fuels, will increase demand. Remember, that in 2010 the IEA started the year estimating demand growth of 1.0 million barrels per day that year and when the year was over demand had increased by 3.3 million barrels per day.
In addition to the big increase in SUV and truck sales (that will continue), transition of vehicles to run on natural gas (CNG & LNG) has slowed significantly.
Take a look at the chart ("World Oil Demand") that comes up when you open the link above.
1. That is really a chart of demand for refined products (liquids), not crude oil demand. Approximately 20% of those products are made from NGLs and biofuels.
2. Note that demand is somewhat seasonal; lower in the first half with a sharp increase in the second half of each year. This is because about 90% of humans live in the northern hemisphere and a lot of them still heat their homes by burning oil. Demand for transportation fuels ramps up in June-August.
I believe that by the 2nd half of 2016 demand for refined products will exceed supply, primarily because U.S, Canada and Brazil oil production will be falling fast in the first half of 2016. The rate of decline will accelerate as capital budgets are being slashed to the bone. Granted, we have a lot of inventory to work off. However, the oil traders will see the trend and begin bidding up futures prices long before there is physical stress on the system.
Iran is a wildcard in this, but non-OPEC production will be falling much faster than the estimated increase of 500,000 BOPD that most people think Iran can bring to market. I think Iran is already smuggling oil out of Iraq. They are now in total control of Basra (Iraq's port city).
My take is that IEA's forecast that demand growth will slow (from 1.8 million barrels per day in 2015 to 1.2 million barrels per day in 2016) is too conservative. IEA's forecast assumes that demand growth will return to the historical trend. I believe that today's very low prices for refined products, especially transportation fuels, will increase demand. Remember, that in 2010 the IEA started the year estimating demand growth of 1.0 million barrels per day that year and when the year was over demand had increased by 3.3 million barrels per day.
In addition to the big increase in SUV and truck sales (that will continue), transition of vehicles to run on natural gas (CNG & LNG) has slowed significantly.
Take a look at the chart ("World Oil Demand") that comes up when you open the link above.
1. That is really a chart of demand for refined products (liquids), not crude oil demand. Approximately 20% of those products are made from NGLs and biofuels.
2. Note that demand is somewhat seasonal; lower in the first half with a sharp increase in the second half of each year. This is because about 90% of humans live in the northern hemisphere and a lot of them still heat their homes by burning oil. Demand for transportation fuels ramps up in June-August.
I believe that by the 2nd half of 2016 demand for refined products will exceed supply, primarily because U.S, Canada and Brazil oil production will be falling fast in the first half of 2016. The rate of decline will accelerate as capital budgets are being slashed to the bone. Granted, we have a lot of inventory to work off. However, the oil traders will see the trend and begin bidding up futures prices long before there is physical stress on the system.
Iran is a wildcard in this, but non-OPEC production will be falling much faster than the estimated increase of 500,000 BOPD that most people think Iran can bring to market. I think Iran is already smuggling oil out of Iraq. They are now in total control of Basra (Iraq's port city).
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: OECD inventories drop
Why do I feel like I am in Neverland? Your opinion regarding supply/demand balance in the second half of the New Year is unchanged, yet in the weekend WSJ they talk about mounting inventory with concern that storage ships are filling. I know you have addressed the reasons for your belief, but how can some of these other analysts view differ so much from yours?
Re: OECD inventories drop
because they are not as smart as he is and they are selling papers.