IEA: Oil market calm despite geopolitical supply concerns

In its latest monthly Oil Market Report, the International Energy Agency said the global oil market remains calm despite the ongoing geopolitical supply concerns. The geopolitical supply concerns around Libya, Iran, and Venezuela have been joined in the past few days by the attacks on shipping off Fujairah and on two pumping stations in Saudi Arabia.

In its latest monthly Oil Market Report (OMR), the International Energy Agency said the global oil market remains calm despite the ongoing geopolitical supply concerns.

The geopolitical supply concerns around Libya, Iran, and Venezuela have been joined in the past few days by the attacks on shipping off Fujairah and on two pumping stations in Saudi Arabia. IEA also is monitoring the impact of the contamination of Russian crude oil passing through the 1.4-million b/d Druzhba pipeline system.

Despite the difficult geopolitical backdrop and other supply problems, headline oil prices are little changed from a month ago at just above $70/bbl for Brent crude. There have been clear signals from other producers that they will step in to replace Iran’s barrels—albeit gradually—in response to requests from customers.

Meanwhile, there is a modest offset to supply worries from the demand side. IEA’s growth estimate for 2019 has changed little since the middle of last year, but this month the agency cut it by 90,000 b/d to a still healthy 1.3 million b/d. The reduction is mainly due to weaker-than-expected first-quarter data for Brazil, China, Japan, South Korea, Nigeria, and elsewhere. However, IEA believed that slower demand growth is likely to be short-lived, and the pace will pick up during the rest of the year.

“As we move through the second quarter of 2019, while there is considerable uncertainty on the supply side, it is highly likely that the implied balance will flip into an indicative deficit of about the same size. Stocks in the Organization for Economic Cooperation and Development (OECD) at the start of April have fallen back to the level seen in July in terms of days of forward cover and other stock indicators are pointing in the same direction,” IEA said.

Global oil supply

Global oil supply fell 300,000 b/d month-on-month to 99.3 million b/d in April, led by losses in Canada, Kazakhstan, Azerbaijan, and Iran. The decline was tempered by solid gains in Brazil, the US, Libya, and Nigeria.

In April, as for the Organization of Petroleum Exporting Countries, higher flows from Nigeria and Libya more than offset a hefty decrease from Iran, lifting crude production by 60,000 b/d to 30.2 million b/d. But his was down 1.21 million b/d on a year ago.

Iranian supply looks set to tumble further in May as US waivers end. Saudi Arabia held output far below its supply target during April, unchanged from March but it has indicated willingness to supply more if buyers ask for it. Production could increase by 500,000 b/d before Saudi Arabia reaches its supply target. Preliminary data show the kingdom’s exports rising in May.

For the month, non-OPEC oil supply fell 360,000 b/d month-on-month to 63.6 million b/d. Maintenance outages in Canada, Azerbaijan, and Kazakhstan and improved compliance with agreed output cuts in Russia contributed to a decline in overall non-OPEC supply.

Compared with a year ago, global oil production was up 775,000 b/d. Fueled by the US, non-OPEC supply was up 1.95 million b/d while OPEC supply was down 1.2 million b/d.

World oil demand

In this most recent OMR, IEA revised downward its 2018 global oil demand growth estimates by 70,000 b/d to 1.2 million b/d, and the 2019 forecast by 90,000 b/d to 1.3 million b/d. This is the first change to IEA’s 2019 demand outlook in several months.

The changes reflect lower-than-expected 2018 data in large consuming nations such as Egypt, India, Indonesia, and Nigeria. Also, early 2019 data for Brazil, China, and Japan were below the agency’s earlier estimates.

However, despite lower-than-expected early 2019 data, the pace of oil demand growth is likely to pick up during the rest of the year.

“In other words, [this year’s first quarter] will end up being a tough quarter rather than the start of a new trend. Non-OECD countries will continue to drive overall oil demand in 2019 and be responsible for 1.1 million b/d of growth. In the OECD, there will be growth of 210,000 b/d principally supported by the Americas. Oil demand is expected to average 100.4 million b/d overall, the first time it reaches the 100 million b/d level on an annual basis,” IEA said.

On the economic fundamental side, the general assumption of IEA remains that, after a period of weakness at the end of 2018 and in this year’s first quarter, world economic activity is likely to pick up in this year’s second half and into 2020. Patient monetary policies and fiscal stimulus should contribute to support growth. Trade disputes remain, however, the major threat to world growth, as well as oil demand growth.

Refining, storage

In this year’s second quarter, refining throughput is seeing a third consecutive quarter of lackluster growth, but is expected to climb by 1 million b/d in the months between May and August. A limited impact on refining activity in Europe is expected from the Druzhba pipeline disruption.

OECD commercial stocks fell 25.8 million bbl month-on-month in March to 2 849 million bbl—the second straight monthly decrease. The fall was larger than the typical 5-year average reduction of 4 million bbl. Total stocks were 2.2 million bbl below the 5-year average at the end of the month. Stocks in days of forward demand declined to 59.8 days—the lowest level since July 2018.

Crude stocks fell counter-seasonally by 6.3 million bbl to 1,105 million bbl, with draws recorded in the OECD Americas and the OECD Asia Oceania. Oil product inventories fell by 20.3 million bbl to 1,411 million bbl, in line with the 5-year average decline of 25.6 million bbl. The fell mainly came from motor gasoline stocks.

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