IEA raises forecast for global oil demand this year

PARIS: Global demand for oil will be slightly higher than expected this year, driven by increased consumption in India, the US and Germany, the International Energy Agency (IEA) predicted Thursday.
“Estimates of global oil product demand growth in 2017 have been revised up... to 1.4 million barrels per day, on surprisingly robust preliminary second quarter demand numbers,” the IEA wrote in its latest monthly oil market report.
After “lackluster” oil demand growth in the first quarter, “there was a dramatic acceleration” in the second quarter, “due to a combination of expected increases in India, and some surprise additions in the US and Germany,” it said.
In total, global oil demand was projected to reach 98 million barrels per day this year.
And it was set to increase at around the same pace again next year to 99.4 million barrels per day, the IEA said.
In a bid to reduce the glut of oil and shore up prices, the Organization of Petroleum Exporting Countries (OPEC) agreed to cut production from the start of the year, with non-OPEC producers led by Russia partially matching the cuts.
But some observers feel that the so-called “rebalancing” of the market and the resulting rise in prices is taking too long to materialize.
The IEA called for patience.
“Oil investors are going through a period of waning confidence with prices recently returning to levels not seen since early November,” it wrote.
“The widespread interpretation of this is that investors believe, perhaps impatiently, that oil market re-balancing is taking too long with some calling for additional action by producers to speed up the process.”
The agreement to cut output had subsequently been extended and now runs until March 2018.
“And success is judged over the whole period rather than in one month,” the IEA said.
“It is OPEC’s business to manage its output and we must wait and see if the changing supply picture from the group as a whole forces an adjustment to the current arrangements.”
The IEA noted that compliance from the 10 non-OPEC producers who volunteered to cut production improved in June, “higher than the rate achieved by OPEC.”
OPEC output increased to 32.61 million bpd in June from 32.21 million bpd in May.
Producers are now set to meet in St. Petersburg in Russia on July 24 to review the output situation.
According to the IEA, OPEC’s compliance with cuts slumped to 78 percent last month from 95 percent in May as higher-than-allowed output from Algeria, Ecuador, Gabon, Iraq, the UAE and Venezuela offset strong compliance from Saudi Arabia, Kuwait, Qatar and Angola.
“Each month something seems to come along to raise doubts about the pace of the rebalancing process. This month, there are two hitches: A dramatic recovery in oil production from Libya and Nigeria and a lower rate of compliance by OPEC with its own output agreement,” the IEA said.
OPEC members Libya and Nigeria were exempted from the cuts due to years of unrest that have sapped their output. The two countries have managed to increase their combined production by more than 700,000 bpd in recent months, the IEA said.
“For fellow OPEC members, who agreed to reduce production by 1.2 million bpd, to see their cut effectively diluted by nearly two-thirds must be very frustrating, especially as their pact has, hitherto, been well observed by historical standards,” the IEA said.
The cuts have stabilized oil at around $45-50 per barrel, but prices have come under renewed pressure in recent weeks due to growing US output and little evidence of global stocks falling from record highs above 3 billion barrels.
The IEA, which advises industrialized nations on energy policy, said strong demand growth in the second half of 2017 and in 2018 should nevertheless speed up market rebalancing.
It said demand for OPEC’s crude was forecast to rise steadily through 2017 and reach 33.6 million bpd in the fourth quarter — up 1 million bpd on OPEC’s June output.
“Provided there is strong compliance with OPEC’s cuts, that would imply a hefty stock draw, even if Libya and Nigeria recover further,” it said.
The IEA said stocks in industrialized nations in May were 266 million barrels above the five-year average, down from 300 million barrels in April. Preliminary data shows a further moderate reduction in stocks for June.
The agency also said that while non-OPEC producers such as the US, Canada and Brazil were firmly back in growth mode, the recent decline in oil prices could force some US producers to reassess their prospects.
“Financial data suggests that while output might be gushing, profits are not and recent press reports quoted leading company executives saying that oil prices need to be around $50 per barrel to maintain production growth,” the IEA said.