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Sunday, November 18, 2018

IEA - fundamentals still strong

The International Energy Agency (IEA) reported in its last monthly report that growth in demand for global oil product remains largely unchanged at 2.9 mbd in 2010 and 1.4 mbd in 2011, but high oil prices entail significant downside risks to this year's outlook. Baseline changes in nonOECD Asia and stronger Middle East levels lift absolute demand slightly to 87.9 mbd and 89.4 mbd, in 2010 and 2011 respectively.


World oil supply rose to an all-time high of 89 mbd in February, up 0.2 mbd from January. NonOPEC oil supply rose 0.3 mbd to 53.2 mbd on reinstated Alaskan output. 2010 nonOPEC estimates are left unchanged at 52.8 mbd, while the 2011 forecast is raised by 0.1 mbd, to 53.6 mbd, on strongerthanexpected Canadian output.


OPEC crude oil output in February fell by 0.095 mbd to 30.05 mbd. A near 0.2 mbd average monthly loss of Libyan supply was partly offset by higher production from Gulf states. OPEC's 'effective' spare capacity, excluding Libya, is now close to 4.08 mbd, its lowest since end2008. The 'call on OPEC crude and stock change', revised up for 1Q11, is cut going forward, averaging 29.9 mbd for 2011 overall.


In January OECD industry inventories rose by 32 mb to 2,695 mb and forward demand cover increased to 58.2 days. Preliminary February data point to a sharp 43.4 mb decline, while oil in shortterm floating storage grew by 8 mb.


The situation in the shipping market has been uncertain in the aftermath of the financial crisis. The situation in some of the Arab League countries has added to the uncertainty. On top of that we are witness to the shocking consequences of the devastating earthquake and tsunami in Japan. The situation is mind-blowing, and market consequences pale into insignificance in the face of so much destruction and human suffering.



The latest projection for oil demand and world economic growth have been very positive. But so much has changed over recent weeks, not least the oil price. An oil price of above USD 100 per barrel over a prolonged period will affect both economic growth and oil demand. Increasing demand, reduced oil stocks and reduced surplus oil production capacity all contribute to high oil prices in addition to the insurgency in some of the Arab league countries. In emerging economies the effect on the product prices will be felt much more strongly than in most OECD countries as the taxes on products are not so high.


Forecast global oil product demand for 2010 and 2011 have been continuously revised up by IEA over recent months – not least this current month. The demand growth in 2010 was 3.3% and the current projection for 2011 is 1.7%.


In the current situation of upheaval and uncertainty, it may be best to take the view of the economist of Nomura, Richard Koo, who suggests that we are not to too preoccupied with numbers.  It may be best to do what one can while the dust is settling.


Contact: Erik Ranheim