Amid plentiful oil supply and weakening global economic and oil demand growth, oil prices have been easing, with front-month Brent futures slipping below $100/bbl in September for the first time in more than a year, according to the most recent Oil Market Report from the International Energy Agency.
“Rising Libyan exports, an overhang of West African barrels—resulting from slower US imports—and sluggish demand from refiners in Europe and Asia took their toll on spot crude prices, deflating global benchmarks,” IEA said.
West Texas Intermediate showed the biggest month‐on‐month loss due in part to unplanned refinery outages that forced a temporary slowdown in run rates while US output surged.
ICE Brent futures were last trading at $98/bbl. NYMEX WTI was around $91.40/bbl.
Demand
Global oil demand in the second quarter showed clear signs of weakening, as growth eased back to a near two-and-a-half year low of around 480,000 b/d year-on-year. Total oil product demand averaged 91.6 million b/d in the second quarter, 125,000 b/d below the estimate carried in last month’s report.
With curbed economic outlooks for China and Europe, the forecast of oil demand growth for this year has been trimmed 65,000 b/d to 0.9 million b/d, taking projected demand for the year to 92.6 million b/d.
IEA also tempered its demand forecast for 2015 to 93.8 million b/d, about 165,000 b/d below the previous projection, anticipating a marginally weaker GDP projection with the publication of the International Monetary Fund’s October update.
Supply
According to the monthly report, global supply was down 395,000 b/d in August to 92.9 million b/d.
Supply from the Organization of the Petroleum Exporting Countries fell 130,000 b/d in August to 30.31 million b/d after output declined in Saudi Arabia and Iraq.
“The latest dip in Saudi supply seems primarily to reflect reduced import demand from US refiners, as well as weaker‐than‐expected crude demand in Europe and Asia," IEA said.
Meanwhile, Libya’s output recovery held up in August, with flows rising 110,000 b/d from July to 530,000 b/d, thanks to reopening of vital eastern ports.
The “call” on OPEC crude and stock change was lowered 200,000 b/d in the fourth quarter to 30.6 million b/d on additional non‐OPEC supplies and anticipated slower demand. The “call” is forecast to dip by 300,000 b/d to 29.6 million b/d for full-year 2015 from 2014 levels.
August non-OPEC production dropped 265,000 b/d from the previous month to 56.2 million b/d, on seasonal declines in the North Sea and Alaska, as well as reduced output in Malaysia. Quarterly supply in fourth quarter is expected to reach 56.8 million b/d, with the end of the summer maintenance season and the winding down of the hurricane season.
OECD stocks, refining
Due to soaring US ‘other products’ stocks, OECD industry inventories built seasonally by 15.5 million b/d to stand at 2,670 million bbl at end-July. Their deficit to the five-year average narrowed slightly to 57 million bbl while refined products covered 29.6 days of forward demand at end-month, a rise of 0.6 days at end-June.
Global refinery crude demand rose more than 2 million b/d over July and August to peak at 78.7 million b/d before seasonal maintenance likely curbed activity again from September.
Global crude runs projections for the second half of the year are largely unchanged since last month’s Report, averaging 77.9 million b/d and 77.5 million b/d respectively for the last two quarters of 2014.
“New capacity in the Middle East, an expected rebound in Chinese runs and a more positive outlook for European refiners in the fourth quarter of 2014, compared with exceptionally steep contractions in regional runs at the tail end of 2013, support growth at end‐year,” IEA said.
