Near-month futures prices for benchmark US crudes tumbled to a 3-month low before edging slightly higher May 13 as traders reassessed the week-long sell-off.
Meanwhile, in its May 11 report, the International Energy Agency in Paris again revised its 2005 global demand forecast upward by 30,000 b/d, for a total growth of 1.8 million b/d to 84.3 million b/d. It said, however, "Preliminary data indicate that global demand growth was weaker than previously anticipated in the first quarter of 2005. As a consequence, first-quarter global demand growth was revised downwards by 290,000 b/d to 1.83 million b/d."
IEA blamed a substantial slowdown of first-quarter demand growth in both the US and China. "Preliminary indications are that China's apparent demand grew by only 280,000 b/d (4.5%) in the first quarter of 2005 vs. 1.01 million b/d (19.3%) during the same period in 2004. Similarly, US product demand growth slowed from 340,000 b/d (1.7%) in the first quarter of 2004 to approximately 250,000 b/d (1.2%) in the first quarter of 2005," it said.
A new phase
The world oil market is still "rebalancing" from the surge last year in demand for crude, IEA said. "We are entering a new phase in several cycles, not necessarily a new order, but a phase [that] could be around for some time," it said.
"The mechanisms of adjustment after last year's 'demand shock' are readily apparent," IEA reported. "US crude stocks at 327 million bbl are at the highest level since 1999, a year when prices dipped to $10/bbl." Among member nations of the Organization for Economic Cooperation and Development, it said, "Total oil stocks posted a contracyclical first-quarter increase of 240,000 b/d against a 5-year average draw of 380,000 b/d, leaving total oil stocks midrange. Prices remain volatile and around $50/bbl but have recently been in contango [a pattern that encourages stocking] through to December 2005."
IEA officials said, "It is the rise in US stocks that is currently leading to the widest divergence in opinions. Some see the coexistence of high prices and high US stocks as a speculative phenomenon, other as a harbinger of pending price weakness. Others, including ourselves, see it as both a cyclical and a regional issue."
US refinery crude throughputs of 15.3 million b/d at the end of April remained "well below" total capacity of 17 million b/d. "If last summer's operating rates are repeated, then throughput could top an average 16.1 million b/d between May and the end of August. The US crude market could tighten rapidly, particularly if currently unfavorable price differentials continue to hamper imports," IEA said. In addition, refinery maintenance reports suggest that global crude demand could be 1.1 million b/d higher in June than April and should continue to rise through to a seasonal peak in August."
World oil supply increased by 435,000 b/d to 84.5 million b/d in April. However, IEA revised its first-quarter supply estimate down by 85,000 b/d, largely as a revision of crude supplies from the Organization of Petroleum Exporting Countries.
IEA revised its outlook for non-OPEC crude supplies up by 55,000 b/d, for a total growth of 955,000 b/d to 51 million b/d in 2005. "The continued swing away from mature OECD producing areas in 2005 is apparent, as OECD production sees a third straight year of decline, slipping by 165,0000 b/d to 21.1 million b/d. Mexican production in particular has been revised downwards," it said.
Overall, the IEA view is marked by a strong prediction of slowing demand growth in China and rebounding supply from Russia, said Paul Horsnell, Barclays Capital Inc., London, in a separate May 11 report
"The main driver of the IEA view is a sharp swing up in non-OPEC production," Horsnell said. At the start of this year, the IEA projected non-OPEC production to average 51.2 million b/d in the first quarter and 51.6 million b/d in the fourth quarter. "Their latest figures put [first-quarter] output as having been 50.3 million b/d, while [fourth quarter] is now forecast to be 52 million b/d. Over the course of this year, a 900,000 b/d disappointment in [first-quarter] output has been accompanied by a 400,000 b/d upgrade in the prospects for [fourth quarter], even after some sharply lower Russian supply growth figures," Horsnell said.
Meanwhile, Barclays Capital raised its 2005 price forecasts by $6.80 to an average $54.60/bbl for West Texas Intermediate and by $8.40 to $53/bbl for North Sea Brent crude, citing "sharper than expected deceleration of Russian output, the robustness of Chinese demand," and increased geopolitical risks, "most particularly concerning Iran."
(Online May 16, 2005; author's e-mail: firstname.lastname@example.org)