IEA cuts oil demand forecast

Marco Green
May 18, 2018

The International Energy Agency (IEA) cut forecasts for global oil demand growth in 2018 as the highest prices in three years put a brake on consumption. The inventory surplus has vanished, and more outages could push oil prices up even higher.

USA crude is trading at a hefty discount to Brent, the worldwide marker, thanks to sharp rises in US production to 10.7 million bpd, which has left the American domestic oil market well supplied.

The IEA, established in the 1970s to oversee the energy security of consuming nations, said it welcomed a statement by Saudi Arabia acknowledging the need to mitigate any shortage that might arise. US crude dropped 6 cents to $70.90 a barrel, while Brent fell 22 cents to $78.01.

Members of OPEC have pledged to step in and ramp up production if needed.

There is a great deal of confusion about what Conoco's actions mean for Venezuela's oil production, but the asset seizures could be pivotal.

Moreover, the customers who shifted to Iran for their crude purchase such as world's top importer China will be forced to buy from the kingdom at higher prices. Diesel inventories are seen down about 2.1 million barrels.

On top of that, Venezuela is set to hold a presidential election on May 20, an event that could be met with more painful USA sanctions.

The big question is if supply will be lost in Iran, which, coupled with the supply losses in Venezuela, could severely tighten the oil market.

There are also signs that oil production will rise, especially at majors like ExxonMobil, Royal Dutch Shell, Chevron, BP and Total.

The bottleneck in North America likely contributed to a 4.9 million barrel rise in US crude oil inventories, to 435.6 million barrels, that the private American Petroleum Institute reported on Tuesday. That data point is worth emphasizing: OPEC has claimed for more than a year that it was trying to erase the inventory surplus, and at least according to IEA data, that mission has now been accomplished. The quick embrace of Trump's announcement reflects a sense of vindication by Saudi Arabia and the UAE, which have pushed President Trump to take seriously Tehran's ballistic missile programme and purported support for militant groups.

OPEC has no official target price for oil.

Oil prices, which had already risen on the back of steady demand growth and a landmark deal by oil producing countries to lower output, had now surged to above $77 per barrel the IEA noted. Some other reports back up this notion.

In the month of March, India's oil demand rose by a strong 335 kb/d, contributing to a growth of 360 kb/d in the first quarter. However, since the rupee value against dollar is much depreciated since then, the impact on India's trade balance would be higher. That suggests demand won't suddenly fall off of a cliff.

A survey of 11 analysts showed Brent crude LCOc1 prices were likely to average $71.22 a barrel this year and $71.26 in 2019, a sharp increase from the $67.40 and $66.39-per-barrel levels forecast in the April poll.

Other reports by Click Lancashire

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