Global Oil Supply / Demand is VERY TIGHT

[dan_s]

Goehring & Rozencwajg Associates < These guys have hit the nail on the head with all of their predictions of how fast the global oil markets would tighten. Read this carefully.

"We continue to believe non-OECD demand is being understated. Based on our emerging market oil demand work (the so-called “S-Curve”), we have long argued the IEA would be forced to revise demand higher. The most notable country going through its “S-Curve tipping point” (the period when oil demand begins to rise much faster relative to real GDP growth) is China, but in our last several letters we explained how India had passed its tipping point as well."

"Since the IEA first released estimates for 2018 demand, they have revised both Chinese and Indian demand higher by 130,000 and a staggering 240,000 b/d, respectively. However, we continue to believe more revisions are forthcoming. The reason continues to be the “missing barrels” which have persisted through the first half of 2018. Over the last eight months, the IEA’s “miscellaneous to balance” line item has averaged nearly 500,000 b/d and our models continue to tell us these “missing barrels” will ultimately be accounted for through upward revisions to non-OECD demand."

"Furthermore, we believe non-OPEC production outside of the US will continue to disappoint. Between upward revisions to global demand and downward revisions to non-OPEC production outside of the US, we would be surprised if inventories did not continue to draw by at least 500,000 b/d compared to seasonal averages throughout 2018. Such a deficit would take OECD inventories down to dangerously low levels not seen since 2008, which should maintain continued upward pressure on pricing throughout the remainder of the year."

If you'd like to see the full report that the quote above was taken from, send me an email. It has some rather stunning charts. My email is dmsteffens@comcast.net

MY TAKE: IEA has a long history of under-stating oil demand growth, especially when the global economy is doing quite well (like it is this year). If the prediction above is correct, the price of oil will need to go a lot higher (regardless of what happens with Iran). Oil will be "rationed by price" in order to get the global oil market back into balance. - Dan
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LONDON (Bloomberg) -- The International Energy Agency warned that oil prices could break out above $80/bbl unless other producers act to offset deepening supply losses in Iran and Venezuela.

Iranian crude exports have fallen significantly before U.S. sanctions even take effect, the IEA said in a monthly report. The Middle Eastern nation will face further pressure in coming months and the economic crisis in Venezuela is pushing output there to the lowest in decades. It’s uncertain whether Saudi Arabia and other producers will fill any shortfall, or how far they’re able to, the agency said.

“Things are tightening up,” said the Paris-based IEA, which advises most major economies on energy policy. “If Venezuelan and Iranian exports do continue to fall, markets could tighten and oil prices could rise” unless there are offsetting production increases elsewhere, it said.

Oil climbed to a three-month high above $80/bbl in London on Wednesday as fears of a supply crunch eclipsed concern about the risks to demand such as the U.S.-China trade dispute. While OPEC and allies including Russia pledged to boost supply, the IEA said it remains to be seen how much will be delivered.

Saudi Arabia lifted output by 70,000 bpd to 10.42 MMbpd last month, but that remains “some distance from the 11 MMbpd level that Saudi officials initially suggested was on the way,” the IEA said.

While the agency warned that “there is a risk to the 2019 outlook” for demand from challenges in emerging markets such as currency depreciation and trade disputes, it kept forecasts for consumption unchanged.

In the meantime, supply risks dominate. Oil inventories in developed economies are already below-average and will decline further in the fourth quarter, the IEA predicted.

Venezuela, which is pumping at just half the rate it managed in early 2016, could see its output slump another 19% to 1 MMbpd this year as infrastructure deteriorates and workers flee, the agency predicted.

Iranian production has already fallen to the lowest since July 2016, at 3.63 MMbpd, as buyers retreat ahead of U.S. sanctions that come into force on Nov. 4.

Although Russia, Saudi Arabia and other Gulf members of OPEC promised to bolster production by about 1 MMbpd, the IEA remained cautious on whether the full amount would be delivered. It’s unclear how quickly OPEC’s spare capacity, which stands at about 2.7 MMbpd, can be activated, it said.

“We are entering a very crucial period for the oil market,” which could push prices out of the $70-to-$80/bbl range seen in the past few months, the IEA said.