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The International Energy Agency has joined the chorus voicing concern that oil supply is again running ahead of demand.
The Paris-based think tank on Thursday lowered its forecast for oil demand growth for next year, saying the rebound in oil prices from their depths at the start of the year had slowed the market’s momentum.
The IEA also noted that Opec output was steaming ahead, led by record output from Saudi Arabia in July, as well as gains from other Arabian Gulf producers, including the UAE and Kuwait.
In its monthly oil market report, the IEA said it lowered its forecast for demand growth for next year by 100,000 barrels per day, to 1.2 million bpd, which would represent a slowdown from this year’s forecast growth of 1.4 million bpd.
The slowdown is already apparent, with data confirming that demand growth in the first half of the year slowed from a year-on-year rise of 1.6 million bpd in the first three months to 1.4 million bpd in the second quarter. The IEA now expects growth to slow further in the third quarter – to 1.2 million bpd.
The US, the world’s biggest market, is the main factor. There was strong growth in demand as petrol prices plummeted there in line with the oil price slump last year. Refineries’ demand for crude rose sharply, but that response overshot somewhat and rising inventories – particularly of diesel and other middle distillates (such as jet fuel) – has led to cutbacks at plants totalling about 10 per cent of capacity.
In other bad news for the world market, the pace of growth in India – which has been a growth engine for the oil market – has slowed sharply.
"The rapid pace of Indian demand growth has eased dramatically in recent months ... due to June’s sharp slowdown in gasoline and diesel demand growth as well as stuttering petrochemical use during May," the IEA reported.
A relatively mild monsoon season and a slowing of growth in the transportation sector mid-year, as well as a slight downward revision to the IMF’s forecast for India’s economic growth next year, led the IEA to trim its forecast oil demand growth for the subcontinent this year and next.
The IEA noted that output from outside Opec increased last month, mainly owing to Canadian output recovering from outages after wildfires ravaged the Fort McMurray oil-producing area in Alberta.
Output from non-Opec producers is still down 1.1 million bpd year-on-year, outstripping gains in production by Opec of 870,000 bpd, led by Saudi Arabia’s record output last month of more than 10.6 million bpd.
IEA revised upward expected non-Opec output for next year by 100,000 bpd, to 56.9 million bpd.
The upshot, the IEA concluded: "The massive overhang of stocks is...keeping a lid on prices, with both newly produced and stored crude competing for market share in an increasingly volatile refinery margin environment."
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