IEA: Oil prices pulling back on eased supply concerns, softening demand

On the back of rapid territorial gains by militants of the Islamic State of Iraq and Syria (ISIS) in northern Iraq, ICE Brent oil futures surged in mid-June to a 9-month high of more than $115/bbl. However, according to the International Energy Agency’s most recent Oil Market Report, future prices pulled back in early July on confidence that Baghdad’s southern fields would remain largely insulated from the turmoil and improved prospects for a recovery in Libyan exports. Brent futures last traded at $108/bbl, and West Texas Intermediate futures at $102/bbl.

In the US, WTI prices were supported in mid-June by Washington’s decision to issue permits to certain firms to export stabilized condensate.

“The front-month ICE Brent and NYMEX WTI spread contracted in June, averaging $6.82/bbl compared with $7.45/bbl in May, partly on the possibility that the export of distilled condensate could remove some of the overhang along the Gulf Coast,” IEA said.


This month’s report revised down from June’s OMR the estimate of global demand for this year’s second quarter by 135,000 b/d to 91.9 million b/d. China, Germany, Italy, and Iraq led the revisions.

“Though Chinese strategic stock building has kept crude imports elevated, Chinese demand growth remains sluggish,” IEA said. However, looking forward, IEA maintains its forecast for stronger Chinese oil demand in this year’s second half, taking the overall growth estimate for 2014 to 3.3%, as total deliveries average around 10.4 million b/d.

Following a reduced second-quarter estimate and signs that the global economic recovery may have eased back somewhat, the estimate of 2014 demand has been trimmed by 130,000 b/d to 92.7 million b/d.

Global oil demand growth is forecast to accelerate to 1.4 million b/d in 2015 from 1.2 million b/d in 2014, as macroeconomic conditions improve.


According to the July report, global supplies were virtually unchanged month-on-month in June, up around just 20,000 b/d to 92.6 million b/d. Compared to a year ago, global supplies were 995,000 b/d higher, with supply growth of 1.7 million b/d outside the Organization of the Petroleum Exporting Countries more than offsetting the OPEC decline of 765,000 b/d.

OPEC supplies in June averaged 30.03 million b/d, as lower Iraqi production offset gains in Saudi Arabia, Iran, Nigeria, and Angola. According to IEA, the ‘call’ on OPEC will be cut by 350 000 b/d for the second half of the year to 30.6 million b/d on improved non-OPEC supply and lower demand, and is forecast to dip to 29.8 million b/d in 2015 from 29.9 million b/d in 2014.

June non-OPEC production rose by 55,000 b/d from the previous month, as a seasonal increase in biofuels supply largely offset a 130,000 b/d drop in all other liquids output.

Non-OPEC supply is forecast to grow by 1.2 million b/d in 2015, down slightly on 2013 and 2014 forecast levels.

OECD stocks, refining

OECD commercial oil inventories posted a steeper-than-average build of 44.2 million b/d in May to stand at 2,639 million bbl by end month. Their deficit to the 5-year average narrowed to 69.6 million bbl from a revised 106.1 million bbl at end April. Refined products covered 29 days of demand at end May, up 0.4 days on the month. Preliminary data show that OECD stocks rose by 8.3 million bbl in June.

According to IEA data, global refinery crude throughputs look to have slipped below year-earlier levels in June, for the first time since October 2013, when European throughputs dove to 25-year lows. Refinery outages on the US Gulf Coast in mid-June and plummeting runs in both Japan and Europe curbed OECD runs, while shutdowns in Iraq, India, and China, among others, curtailed non-OECD refinery intake. Estimates of the 2014 second quarter global refinery runs have thus been lowered by 300,000 b/d since last month’s report, to an average of 76.2 million b/d.

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