Lower economic growth forces down IEA oil demand projections

Dimmer global economic growth assumptions and lower-than-expected oil demand during the third quarter in developing countries have driven down expected worldwide oil demand growth, according to the International Energy Agency’s latest monthly Oil Market Report.

However, stronger-than-expected oil demand in the developed countries of the Organization for Economic Cooperation and Development (OECD), mostly in the US, as well as power generation demand in Japan, anticipated Libyan demand recovery, and demand strength in the Middle East offset some of the demand weakness, IEA said.

The Paris-based agency trimmed its outlook for this year’s oil demand growth by 200,000 b/d from last month’s report and now sees demand averaging 89.3 million b/d and posting a 1 million b/d increase from last year.

The demand growth outlook for 2012 was cut by 400,000 b/d and is now estimated at 1.4 million b/d.

OECD demand will average 45.8 million b/d this year, a 370,000 b/d decline from 2010, and 45.6 million b/d in 2012, IEA projects.

The agency said that it cut economic growth assumptions for both 2011 and 2012, particularly in North America and Europe. In 2011, stronger‐than‐expected oil data for North America and the Pacific roughly balance weaker European readings and the economic growth changes, resulting in a net downward revision of only 20,000 b/d.

In 2012, OECD demand is revised down by 220,000 b/d. While economic sluggishness provides downside risks, oil‐fired power generation in Japan lends upside potential, IEA said.

Meanwhile, estimated non‐OECD oil demand is revised down by 180,000 b/d to 43.5 million b/d this year, climbing by 1.4 million b/d from 2010. And 2012 non-OECD demand is forecast to average 45.1 million b/d.

IEA moderately downgraded non-OECD economic growth, largely due to a slightly less-bullish outlook in China. Lower than expected June and July oil demand readings in Asia and Latin America combined with the economic growth adjustment are behind the demand revisions, the agency said, while oil demand growth in the Middle East and a reassessment of Libyan demand provide some upside to the demand growth picture.

Oil supply

Global oil supply rose by 1 million b/d from July to average 89.1 million b/d in August, with countries outside the Organization of Petroleum Exporting Countries (OPEC) providing 80% of the total increase, according to IEA.

Global oil production climbed by 1.2 million b/d from a year earlier, as almost 40% of the increase stemmed from higher OPEC natural gas liquids production and another third from increased OPEC crude output.

OPEC crude oil output in August increased to 30.26 million b/d. Larger volumes from Saudi Arabia, Nigeria, Angola, Iraq, Kuwait, and the UAE more than offset a combined cut of 40,000 b/d in Iran and Venezuela, IEA reported

Despite the group’s higher output levels, IEA figures that August production was still 1.04 million b/d below the 31.3 million b/d ‘call on OPEC crude and stock change’ expected for the third quarter. However, the ‘call’ for the fourth quarter has been revised down by 200,000 b/d to 30.5 million b/d due to a downward revision for demand on the back of a weaker global economic outlook.

IEA has modestly revised up its expectations of Libyan crude production capacity to 350,000‐400,000 b/d by end‐2011, rising to a total of 1.1 million b/d by the fourth quarter of 2012. The projection is predicated on an imminent end to the civil unrest and assumes that political stability and security are achieved in the near term.

Libya’s Zawiya and smaller Tobruk refineries may restart operations relatively quickly once crude supplies are available, but Ras Lanuf, the country’s largest, may take several months to restart, IEA said. And depending on the prioritization of domestic oil use vs. revenue needs, crude exports might reach 200,000‐250,000 b/d in the fourth quarter, rising to 650,000‐850,000 b/d by the end of2012.

Russia's oil output hit another post‐Soviet high of 10.6 million b/d in August, driven by expanding output at TNK‐BP greenfields, sustained output at Rosneft and Gazprom Neft’s brownfields, and continued growth in condensate output from Gazprom, IEA reported.

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