(EnergyAsia, October 31 2014, Friday) — Having crashed nearly 30% since June, world oil prices may still have room to fall further as global supply is rising while demand growth is slowing down rapidly, suggests the International Energy Agency (IEA).
Brent is trading near a four-year low, having fallen below US$83 a barrel this week after hitting a high of over US$115 in June.
Four months of steadily declining oil prices have not led to faster demand growth or put the brakes on supply increases. Instead, both buyers and sellers have reacted largely with indifference. OPEC members, especially Saudi Arabia, are more interested in defending their market share and are refusing to slash production to even make a pretend show of propping up prices. US shale firms are still fracking away to raise production to a near three-decade high, confident they will remain profitable with WTI at US$70.
“Further oil price drops would likely be needed for supply to take a hit – or for demand growth to get a lift,” observed the IEA, whose analysis showed that many producers of unconventional oil remain profitable with Brent at US$80 per barrel.
“While it has been noted that many producer countries face a high ‘fiscal breakeven’ price, this is a misnomer. High budget needs might lead them to dig into reserves if oil revenues fall short without necessarily making low‐cost oil production uneconomical,” said the IEA.
“Producers, having recently ramped up, are not signalling an imminent cut. For those whose currency is not pegged to the US dollar, recent price drops have been partly offset by swings in foreign exchange rates: thus Russia’s nominal export revenues in roubles inched up lately even as they plunged in dollar terms.”
In its October report, the IEA slashed its forecast for global oil demand to reach 92.40 million b/d in 2014 and to 93.53 million b/d in 2015. This compares with its September call for global demand at 92.61 million b/d for 2014 and 93.84 million b/d for 2015. Its August forecasts were even higher at 92.68 million and 94 million b/d for the two respective years.
The IEA cited the weak outlook on economic growth for reduing its oil demand forecast.
“The International Monetary Fund (IMF) cut its forecast of economic growth for 2014 and 2015 for the third time this year, in its October World Economic Outlook,” it said. The IMF reduced its latest forecasts for the world’s 2014 GDP growth to 3.3%, down from its July estimate of 3.4%, and 3.8% (versus 4.0%) for 2015.
The supply outlook from both OPEC and OPEC sources is rosy, with production in September rising by almost 910,000 b/d to 93.8 million b/d. Compared with a year earlier, total supply has risen by 2.8 million b/d while OPEC crude oil output rose to a 13‐month high in September, led by Libya’s continued recovery and higher Iraqi production.
IEA’s global oil demand forecasts
October 2014
2013 2014 2015 2015/2014
Americas 24.08 24.07 24.14 0.29%
Developing Asia 21.95 22.46 23.10 2.85
MidEast 7.90 8.09 8.31 2.72
Latin America 6.62 6.77 6.90 1.92
Former SU 4.73 4.80 4.85 1.04
Africa 3.84 3.94 4.11 4.31
Others 22.63 22.27 22.12 -0.76
TOTAL 91.75 92.40 93.53 1.22%
September 2014
2013 2014 2015 2015/2014
Americas 24.08 24.11 24.17 0.25%
Developing Asia 21.93 22.50 23.21 3.16
MidEast 7.89 8.11 8.34 2.84
Latin America 6.62 6.78 6.92 2.06
Former SU 4.73 4.80 4.87 1.46
Africa 3.84 3.97 4.16 4.79
Others 22.62 22.34 22.17 -0.76
TOTAL 91.71 92.61 93.84 1.33%
August 2014
2013 2014 2015 2015/2014
Americas 24.02 24.07 24.10 0.12%
Developing Asia 21.90 22.53 23.31 3.46
MidEast 7.90 8.12 8.37 3.08
Latin America 6.62 6.79 6.93 2.06
Former SU 4.73 4.78 4.84 1.26
Africa 3.84 3.97 4.16 4.79
Others 22.62 22.42 22.29 -0.58
TOTAL 91.63 92.68 94.00 1.42%
July 2014
2013 2014 2015 2015/2014
Americas 24.01 24.12 24.14 0.08%
Developing Asia 21.82 22.50 23.31 3.60
MidEast 7.97 8.19 8.45 3.17
Latin America 6.61 6.78 6.93 2.21
Former SU 4.61 4.69 4.77 1.71
Africa 3.71 3.88 4.06 4.64
Others 22.71 22.51 22.42 -0.40
TOTAL 91.44 92.67 94.08 1.52%