Oil demand slowing as supply rises
An inventory surplus will limit price increases, agency suggests
The much-anticipated rebalancing of oil markets appears to be a bit further away after the International Energy Agency revised its forecast, trimming its expectations for the growth in oil demand and citing near-record production by OPEC’s Middle East exporters.
The agency said Tuesday that global oil demand is rising at a slower pace than expected, lowering its forecast by100,000 barrels a day to an increase of 1.3 million barrels a day in 2016 and 1.2 million barrels a day in 2017.
“Recent pillars of demand growth — China and India — are wobbling,” the energy agency said.
“Recent pillars of demand growth — China and India — are wobbling.” INTERNATIONAL ENERGY AGENCY
It added that increases in Europe had “vanished” and that U.S. “momentum” toward higher consumption had slowed.
On the supply side, rising output by members of the Organization of the Petroleum Exporting Countries (OPEC) has more than made up for falling output among non-OPEC countries, especially the U.S., formerly the engine of non-OPEC supply increases. OPEC’s low-cost pro- ducers Saudi Arabia, Kuwait, Iraq and Iran — where production costs are often lower than $10 (U.S.) a barrel — cranked up output, with Saudi Arabia and Iran each producing one million barrels a day more than they did in late 2014. The increase by Iran, recovering from years of economic sanctions following the international agreement limiting its nuclear program, has been swifter than the energy agency expected.
“When will the world oil market return to balance? That is the big
“When will the world oil market return to balance? That is the big question today.” INTERNATIONAL ENERGY AGENCY
question today,” the agency wrote in its closely watched monthly oil market report. With the price of oil at current levels, one would expect supply to contract and demand to grow. “However, the opposite now seems to be happening. Demand growth is slowing and supply is rising.”
The agency had forecast that demand would catch up with supply and that prices would increase, but it said Tuesday that “supply would continue to outpace demand at least through the first half of next year.”
It’s scenario would mean a prolonging of pain in the oil industry, while promising modest fuel costs for consumers. It also affects calculations by the central banks by keeping a lid on inflation.
Oil inventories also rose in the in- dustrialized world, the agency said, increasing the overhang that will continue to limit price increases in the months ahead. It said stockpiles would continue to grow worldwide.
The agency called the supply side “confounding,” adding that “despite oil’s collapse and resulting investment cuts, global oil production is still expanding — although nowhere near the breakneck pace of 2015.
“As for the market’s return to balance — it looks like we may have to wait awhile longer.”