IEA monthly Oil Market Report - Feb 15

[dan_s]

Key points from the mid-February with my comments in blue.

The IEA saw the global oil market tighten in January despite apparent demand weakness, aided by US/Canada supply outages due to an extreme arctic freeze and additional OPEC+ voluntary supply cuts. Middle East tensions added further upward momentum.

They believe the expansive post-pandemic growth phase in global oil demand has largely run its course with an apparent slowdown in China underpinning a (830K) bpd decline in consumption in 4Q23. While higher global oil supply this year, led by the United States, Brazil, Guyana and Canada, should more than eclipse the expected rise in world oil demand, a sharp decline in output in January set the year off to a difficult start. With the robust outlook for non-OPEC+ supply, their balances suggest a slight build in inventories in 1Q24 despite the extension and deepening of OPEC+ supply curbs. From 2Q24 onwards, continuation of this strength could leave OPEC+ pumping above requirements for its crude oil if extra voluntary cuts are unwound in the second quarter. < Demand for oil is seasonal, so increase in above ground inventories is necessary to meet the demand spike coming in March-June. IMO IEA's forecast that oil production growth will continue near the same pace that it did in 2023 is too bullish.

Global oil demand growth is losing momentum, with annual gains easing from 2.8 mb/d in 3Q23 to 1.8 mb/d in 4Q23. A sharp drop in China underpinned an 830 kb/d decline in global oil demand to 102.1 mb/d in the last quarter of 2023. The pace of expansion is set to decelerate further to 1.2 mb/d in 2024, compared with 2.3 mb/d last year. China, India and Brazil will continue to dominate gains. < Unless we have a global recession, my guess is that global YOY demand growth will be over 2.0 million bpd, with a spike to over 104 million bpd in early Q2.

World oil supply in January posted a sharp decline of 1.4 mb/d m-o-m after an Arctic blast shut in production in North America and as OPEC+ deepened output cuts. Record output from the US, Brazil, Guyana and Canada will nevertheless help boost non-OPEC+ supply by 1.6 mb/d this year compared to 2.4 mb/d in 2023, when total global oil supply rose by 2 mb/d to an average 102.1 mb/d.

Refinery throughputs are set to accelerate from a seasonal low of 81.5 mb/d in February. Atlantic Basin activity will recover from US weather-related disruptions that cut runs by up to 1.7 mb/d, despite a pickup in planned maintenance and as new capacity comes online in the non-OECD. For 2024 as a whole, refinery crude runs are forecast to rise by 1 mb/d to 83.3 mb/d, as a 330 kb/d decline in the OECD mitigates non-OECD gains.

Refining margins recovered from early-January weakness in the Atlantic Basin, led by the US Gulf Coast following the mid-month winter freeze. Although Singapore margins posted a narrow m-o-m gain, the $4.50/bbl increase on average in USGC margins was driven by the late-month rally in cracks that pushed Atlantic Basin margins to their highest level since late September.

Global observed oil stocks plummeted by about 60 mb in January, preliminary data indicate, with on-land inventories falling to their lowest level since at least 2016. In December, global stocks rose by 21.6 mb as a surge in oil on water (+60.7 mb) more than offset draws in on-land inventories (-39 mb). OECD industry stocks fell by 24.1 mb in December, reflecting declines in all three regions. < I expect OECD total petroleum inventories to fall below 25 Days of Consumption in Q2. A market that tight points to much higher oil prices than we have today.

Amid intensifying hostilities in the Middle East and North American supply outages, ICE Brent futures rose by $5/bbl during January - their first monthly gain since September. The forward structure flipped from contango to backwardation, as diverted Red Sea tanker traffic congested Asia-Europe supply chains and delayed flows into the Atlantic Basin. At the time of writing, Brent was trading at $83/bbl.