(EnergyAsia, September 30 2015, Wednesday) — The oil markets will continue to pay for the past sins of overproduction as record-high inventories continue to offset the otherwise bullish impacts of strong demand growth and declining supply, judging from the latest International Energy Agency (IEA) monthly report.


Crude prices sank further as Brent crude stayed submerged below US$50 a barrel and WTI under US$45 for most of September with few signs of recovery ahead. Both benchmarks are down further from the six-year lows reached in August amid deepening concerns over over the health of the global economy, especially in China.

The IEA has again raised its forecasts for global demand, to 95.79 million b/d for 2016 and to 94.43 million b/d this year, compared with 95.60 million b/d and 94.23 million for the two respective years in its previous report last month. It kept the forecast growth rate little changed at 1.45%.

But the markets will get no respite from rising oil inventories, which in the Organisation for Economic Co‑operation and Development (OECD) countries swelled by a further 18 million barrels in July to a record 2.923 billion barrels.

With refineries operating at high levels, crude oil stocks slipped 9.9 million barrels only to be offset by a 26.7 million barrel surge in refined products inventories.

The Paris-based agency said OECD product stocks were sufficient to cover 31.2 days of forward demand at the end of July, with further builds seen in August.

The continuing supply glut and price weakness will force producers outside the Organisation of Petroleum Exporting Countries (OPEC) group to slash output, by more than 400,000 b/d in 2016, for their biggest decline in more than two decades.

“Lower output in the US, Russia and North Sea is expected to drop overall non-OPEC production to 57.7 million b/d (from 58.1 million b/d in 2015),” said the IEA. US output of light uncoventional oil, the main source of supply growth, is forecast to shrink by four million b/d next year.

Due largely to cutbacks in Saudi Arabia, Iraq and Angola, OPEC’s August production fell to 31.57 million b/d from July’s 31.35 million b/d. The cartel’s output was still 1.2 million b/d higher than a year ago.

The IEA estimates the world’s call on OPEC oil to rise to 31.3 million b/d in 2016, up 1.6 million b/d from last year. OPEC will have to make up for the projected decline in non-OPEC supply next year.

 

The worsening impact of the oil market’s collapse

The oil price collapse will remain the big story for the rest of the year as many high-cost producers from Eagle Ford in Texas and Canada’s oilsands patch to Russia and the North Sea are reducing output by as much as 500,000 b/d. The IEA said this could be the biggest decline non-OPEC production in 24 years.

“US oil production is likely to bear the brunt of an oil price decline that has already wiped half the value off Brent. After expanding by a record 1.7 million b/d in 2014, the latest price rout could stop US growth in its tracks,” said the agency.

A sharp decline is already underway, with annual gains shrinking from more than one million b/d at the start of 2015 to roughly half that level by July. The IEA said its analysis suggests that US light unconventional oil supply could fall by nearly 400 kb/d next year as oil’s rout extends a slump in drilling and completion rates.

Eslwhere, marginal fields are being shut or are at risk as companies seek to stem losses from high operating costs. Spending curbs are also accelerating decline rates.

“The sizeable anticipated loss of overall non-OPEC output and robust demand growth suggest that unless prices recover, lower-cost OPEC producers would need to turn up the taps during the second half of 2016 to keep the market in balance,” it said.

 

IEA: global oil demand for Sep 2015

August 2015             2014         2015F             2016F       2016/2015 %

  1. Americas              24.14        24.51              24.67        0.65

Developing Asia       22.61        23.49              24.25        3.24

Middle East                 8.08          8.20                 8.42       2.68

C+L Americas              6.84          6.91                 7.01       1.45

Former S.U.               4.88          4.82                 4.81     -0.21

Africa                                3.96          4.08                      4.25       4.17

Others                          22.22        22.42             22.38       -0.18

TOTAL                            92.73        94.43              95.79       1.44%

Previous Estimate    92.63        94.23              95.60       1.45%

 

 

IEA: global oil demand for Aug 2015

August 2015             2014         2015F             2016F       2016/2015 %

  1. Americas              24.07        24.37              24.53        0.66

Developing Asia       22.58        23.40              24.18        3.33

Middle East              8.10          8.25                  8.47          2.67

C+L Americas           6.84          6.92                  7.02          1.45

Former S.U.              4.85          4.78                  4.77          -0.00

Africa                              3.97          4.11                       4.28          4.14

Others                         22.22        22.40              22.35          -0.22

TOTAL                           92.63        94.23              95.60         1.45%

Previous Estimate 92.58         93.97             95.18         1.29%

 

 

July 2015              2014      2015F    2016F    2016/2015 %

  1. Americas 24.07 24.30     24.42     0.49

Developing Asia                 22.55     23.32     24.07     3.22

Middle East         8.18        8.32        8.54        2.64

C+L Americas     6.81        6.87        6.97        1.46

Former S.U.         4.88        4.73        4.66        -1.48

Africa                       3.89        4.02        4.19        4.23

Others                    22.20     22.41     22.33     -0.36

TOTAL                      92.58     93.97     95.18     1.29%

Previous Est        92.57     93.97     n.a.         n.a.

 

June 2015 2013 2014 2015F 2015/2014 %
N. Americas 24.09 24.04 24.19 0.62
Developing Asia 21.99 22.54 23.31 3.42
Middle East 7.94 8.15 8.28 1.60
C+L Americas 6.66 6.81 6.89 1.17
Former S.U. 4.76 4.88 4.73 -3.07
Africa 3.82 3.89 4.05 4.11
Others 22.66 22.26 22.52 1.17
TOTAL 91.92 92.57 93.97 1.51%
Previous

Estimate

91.88 92.53 93.65 1.21%