IEA Oil Market Report - October 15

[dan_s]

Here is the Executive Summary of IEA's Oil Market Report that was published last week with my comments in blue.

The ongoing energy crisis (low natural gas supply in Europe and not enough electricity from windmills) has prompted a switch to oil that could boost demand by 500 kb/d compared with normal conditions. This contributed to an upward revision to our 2021 and 2022 oil demand forecast, by 170 kb/d and 210 kb/d respectively. Global oil demand is now forecast to rise by 5.5 mb/d in 2021 and 3.3 mb/d in 2022 when it reaches 99.6 mb/d, slightly above pre-Covid levels. < EIA's demand forecast is higher with oil demand going up to 102 million barrels per day by Q3 2022 and I think both of them may end up being too low.

World oil supply has resumed its uptrend as OPEC+ continues to unwind cuts, the US bounces back from Hurricane Ida and maintenance winds down. From September through end-2021, global output is set to rise 2.7 mb/d with OPEC+ accounting for 1.5 mb/d and non-OPEC+ pumping the rest. Total oil output fell 260 kb/d in September to 96 mb/d, led by steeper US hurricane losses.

Global refinery activity in 3Q21 continued to disappoint, with lower throughputs in China and India in August only partially offset by a stronger performance in OECD Asia and Europe. Implied 3Q21 refined product balances show the largest draw in eight years, which explains the strong increase in refinery margins in September despite significantly higher crude prices. < Refined product inventories all over the world are too low and will put upward pressure oil prices.

OECD total industry stocks drew by 28 million barrels (mb) in August to 2,824 mb, 162 mb below pre-Covid five-year average. Preliminary September data for the US, Europe and Japan show on-land industry stocks fell by a further 23 mb. Crude oil held in floating storage decreased by 8.5 mb to 98 mb in August.

Crude oil prices hit a seven-year high in early October boosted by energy supply concerns and continued oil stock draws. North Sea Dated prices rose by $3.65/bbl on average in September to $74.40/bbl and WTI at Cushing $3.84/bbl to $71.56/bbl. Strong backwardation restrained crude price differentials to marker crudes over the month. < Falling OECD oil and refined product inventories are the PRIMARY DRIVER of oil prices.

Highlights

Oil prices are scaling multi-year highs as a shortage of natural gas, LNG and coal boosts demand for oil, which could keep the market in deficit through at least the end of the year. Brent crude futures rose by more than $10/bbl to surpass $83/bbl, while WTI traded above $80/bbl at the time of writing. < The NOV21 WTI NYMEX contract closed at $82.28/bbl on October 15, the highest closing price in over seven year.

The surge in prices has swept through the entire global energy chain, fuelled by robust economic growth as the world emerges from the pandemic. Record coal and natural gas prices as well as rolling black-outs are prompting the power sector and energy-intensive industries to turn to oil to keep the lights on and operations humming. The higher energy prices are also adding to inflationary pressures that, along with power outages, could lead to lower industrial activity and a slowdown in the economic recovery. < Europe is going to pay a big price for moving too fast to renewables, which can NEVER BE A HIGH PERCENTAGE OF THE BASE LOAD FOR ELECTRICITY. Wind and Solar are unreliable and will resulting in more and more power outages.

For now, a reduction in the number of new Covid cases and rising mobility are lending support to oil demand. Global gasoline demand is currently running 2% below pre-Covid levels compared with a deficit of more than 10% at the start of the year. Air-travel is lagging further behind. All in all, world oil demand is forecast to rise by 5.5 mb/d, to 96.3 mb/d in 2021 and 3.3 mb/d in 2022, when it is set to reach pre-Covid levels. < Keep in mind that oil supply is way BELOW pre-Covid levels.

World oil supply, meanwhile, is projected to rise sharply in October as US output bounces back from Hurricane Ida and OPEC+ continues to unwind cuts. Earlier this month the producer group reconfirmed its agreement to boost output by 400 kb/d for November, despite calls from major consuming countries for a more substantial increase to stall the decline in global oil inventories and the rise in prices. Preliminary data shows OECD industry stocks fell 23 mb in September to stand 210 mb below their five-year average and at their lowest level since March 2015.

With OPEC+ currently on track to pump 700 kb/d below the call for its crude during 4Q21, inventories will continue to decline. As the bloc ramps up production, its spare capacity will dwindle. Compared with a cushion of 9 mb/d in 1Q21, effective spare capacity could fall below 4 mb/d by 2Q22 and be concentrated in only a few Middle Eastern countries, although supply is expected to exceed demand. Shrinking global spare capacity underscores the need for increased investments to meet demand further down the road. < Everyone else sees OPEC+ spare capacity gone by Sept 2022 and I believe their actual spare capacity is much lower than they say it is.

As the IEA’s World Energy Outlook 2021 published this week highlights, the world is not investing enough to meet its future energy needs. Transition-related spending is gradually picking up, but remains far short of what is required to meet the rising demand for energy services in a sustainable way. At the same time, the amount being spent on oil appears to be geared towards a world of stagnant or falling demand. A surge in spending on clean energy transitions provides the way forward, but this needs to happen quickly or global energy markets will face a bumpy road ahead.
----------------------------
The Agenda of the Paris Climate Accord and the US Green New Deal have done the opposite of what the politician expected. More coal and more oil will be burned this year for power generation.
IEA is well known for under-estimating oil demand. I have been following them for over two decades and IEA always has to adjust their demand forecast upward.

The Myth about OPEC+ spare capacity: https://bisoninterests.com/content/f/th ... e-capacity