The International Energy Agency said yesterday that the world's oil stockpile was much lower than it previously thought, owing to stronger-than-anticipated demand.
After a strong first quarter for world oil demand, the Paris-based rich consumer countries’ energy watchdog said it now expects demand this year to be 100,000 barrels per day higher than it previously forecast, at 1.3 million bpd.
In its first forecast for next year, the IEA also said it expects the same rate of increased demand – 1.3 million bpd – with a relatively small increase in oil supply from producers outside Opec, of about 200,000 bpd.
The IEA had estimated at the start of the year that the supply glut would continue to grow in the first half by 1.5 million bpd.
Looking back, “it looks as if the figure is about 800,000 bpd”, the IEA report said. “Between January and today, two main factors have transformed the outlook: first, oil demand growth has been significantly stronger than we expected … The second main factor to transform the outlook has been unexpected supply cuts.”
The demand side was helped by much stronger petrol consumption in the US, which helped to turn marginally declining oil demand in the previous five months to strong growth of 400,000 bpd year-on-year in the March-to-May period, the report said.
Next year, India’s forecast demand growth of more than 8 per cent, together with China’s slower but still significant 3.3 per cent growth is expected to keep world demand growth steady.
On the supply front, in the first half of the year Canada’s wildfires removed up to 1.5 million bpd of production capacity, while the politically-related disruptions in Nigeria has forced output to a 30-year low.
Nigeria's troubles – as well as those in fellow Opec member Libya – look long term, the IEA said, while for non-Opec countries production will continue to fall by an average 900,000 bpd this year, including 500,000 bpd for US shale output.
Although the IEA expects non-Opec production to rise again next year – by about 200,000 bpd – this does not account for the effect of the huge decline in investment by oil companies, said Amrita Sen, an oil analyst at Energy Aspects. “I think they are grossly underestimating the [capital expenditure] cuts which has meant the underlying declines in mature oil basins have stepped up,” she said.
The IEA report contrasts with the US government’s Energy Information Agency, which expects non-Opec output to decline by about 200,000 bpd next year. But even that is too low, Ms Sen said.
The rapidly declining spending in areas like the North Sea – where huge job losses are forecast – as well as Russia, China and South America will mean a decline of 500,000 bpd in non-Opec supply next year, consultancy Energy Aspects predicts.
The IEA warned, however, not to expect surging oil prices because of the prolonged period of overproduction that preceded the recent recovery.
“Following three consecutive years of stock build at an average rate close to 1 million bpd, there is an enormous inventory overhang to clear,” the report noted. “This is likely to dampen prospects of a significant increase in oil prices.”
Follow The National's Business section on Twitter