IEA revises up forecasts of global oil demand growth

Sept. 19, 2017
In the latest Oil Market Report (OMR), the International Energy Agency has revised upwards its estimates of global oil demand growth in 2017, this time by 100,000 b/d to 1.6 million b/d.

In the latest Oil Market Report (OMR), the International Energy Agency has revised upwards its estimates of global oil demand growth in 2017, this time by 100,000 b/d to 1.6 million b/d. The forecast combines the impact of very strong demand numbers in June from countries in the Organization for Economic Cooperation and Development and the effect of Hurricanes Harvey and Irma on US energy demand in this year's third quarter. With these revisions, IEA's estimate of global oil demand is now 97.7 million b/d for 2017. Its forecast for 2018 is 99.1 million b/d.

Global oil demand rose 1.2 million b/d year-over-year in this year's first quarter and accelerated to 2.3 million b/d in the second quarter because of a combination of very strong consumption by OECD countries and solid non-OECD demand.

This month, IEA has consumption data through June for all OECD countries and preliminary estimates for major OECD countries. OECD demand growth continues to be stronger than expected, particularly in Europe and the US, IEA said.

US oil demand was extremely strong in this year's second quarter, supported by healthy economic growth, high employment, increasing traffic, freight transportation, and industrial activity. In addition, relatively low oil prices for more than 2 years have supported growth.

"Demand in the third quarter of 2017 will inevitably be impacted by the hurricanes and our initial expectation is that there will be a small year-over-year decline of 20,000 b/d. A strong hurricane, such as Gustav [and] Ike in 2008, removed roughly 500,000 b/d of LPG [and] ethane demand in the first month, 200,000 b/d of naphtha demand, and 200,000 b/d of gasoline demand. [Hurricanes] Harvey and Irma are expected to remove 600,000-800,000 b/d from US oil demand in September, in addition to the seasonal drop in demand usually observed between August and September. Demand is expected to bounce back in the fourth quarter, in particular for gas oil, as recovery work proceeds," IEA said.

European oil demand in June also has been revised upwards by 360,000 b/d compared with recent estimates, showing an increase in demand of 650,000 b/d year-over-year for the month. The year-over-year growth in June, underpinned by strong industrial and transport activity, also was supported by a base effect.

Chinese oil demand rose 575,000 b/d in this year's second quarter following an increase of 700,000 b/d in the first quarter. Demand growth decelerated further in July to 480,000 b/d. The gradual deceleration in growth reflects an ongoing slowdown in economic activity. China's manufacturing production rose 6.7% year-over-year in July—the lowest growth since December 2016. Retail sales growth declined from 11% year-over-year in June to 10.4% in July. Chinese exports rose 5.5% year-over-year in August, slowing from 7.2% in July.

Oil supply

Global oil supply fell 720,000 b/d in August due to unplanned outages and scheduled maintenance, mainly in non-OPEC countries. The first decline in 4 months cut supply to 97.7 million b/d. Compared with a year ago, output was up 1.2 million b/d as non-OPEC output continued to show substantial growth.

Crude output from OPEC fell in August for the first time in 5 months after renewed turmoil in Libya disrupted flows and other members pumped less. Output decreased 210,000 b/d from a 2017 high to 32.67 million b/d in August. The 12 members bound by OPEC's supply pact raised their compliance rate to 82% from 75% during July.

Summer maintenance curbed non-OPEC supplies by more than 500,000 b/d in August. At 58 million b/d, total non-OPEC output nevertheless stood 1.2 million b/d higher than a year earlier, with growth dominated by the US, Kazakhstan, Russia, Canada, and Brazil. The largest year-over-year declines came from Mexico, Azerbaijan, and Oman.

Hurricane Harvey is estimated to have shut in roughly 200,000 b/d of crude oil production in August and 300,000 b/d in September. While lost production from the Gulf of Mexico was small compared with previous hurricanes, onshore Texas output was more severely impacted.

Forecast non-OPEC supply growth is essentially unchanged from last month's OMR, as a higher outlook for Canada and the North Sea offset weaker US and Brazilian estimates. Growth is forecast to average 700,000 b/d in 2017 and nearly 1.5 million b/d in 2018.

Stocks

OECD commercial stocks were unchanged in July at 3.016 billion bbl but they continued to fall against the 5-year average on higher demand, exports to non-OECD countries, and refinery outages.

Oil product stocks in the OECD were only 35 million bbl above the 5-year average at the end of July and could fall further when August and September data are released.

Hurricane Harvey has reduced oil product stocks and had the opposite effect on crude holdings. It will take weeks before its full impact on stocks is completely understood.

Preliminary data for August show reduced stocks in Fujairah, Japan, the US and lower floating storage volumes, whereas stocks in Europe and Singapore increased for the second straight month.