Global oil demand growth to reach five-year high in 2015 – IEA

LONDON (ICIS)–Global oil demand growth is expected to reach a five-year high of 1.7m bbl/day in 2015 on the back of low prices, which continue to be weighed down by oversupply and concerns about the Chinese economy, the International Energy Agency (IEA) said on Friday.

Higher crude oil demand estimates for Q3 2015 – demand 400,000 bbl/day higher at 95m bbl/day – were chiefly attributable to raised July numbers for the US, China, Europe and Russia.

“Russian demand beat earlier expectations as industrial stimuli provided by recent currency weaknesses offset, to a greater degree than previously forecast, the negative impact from otherwise contracting Russian macroeconomic activity,” said the IEA.

Moreover, demand in China showed “persistent gains” on the back of growth in the petrochemical and transport sectors, outweighing “any apparent weakness” in industrial oil use, prompting the IEA to maintain its forecast for demand growth in the country at 3% in 2016, at least until “more clarity emerges” about the government’s recent economic stimulus.

“The latest US demand data has also exceeded earlier expectations, with preliminary July estimates pointing towards deliveries of approximately 19.8m bbl/day, 400,000 bbl/day up on the forecast cited in last month’s report, led by above-forecast LPG [liquefied petroleum gasses], gasoline and ‘other product’ demand,” said the IEA.

Despite higher demand observed during July and August, global crude inventories remain at record highs, resulting in pressure on prices.

Source: IEA.

According to the IEA, inventories in countries belonging to the Organisation for Economic Co-operation and Development (OECD), which includes industrialised countries, continued growing in July by 18m bbl to a record 2,923m bbl.

“Robust refinery throughput pushed crude stocks 9.9m bbl lower, while refined products added 26.7m bbl. At end-July, product stocks covered 31.2 days of forward demand, 0.6 days above end-June. Preliminary data suggest further builds in August,” said the IEA.

On the supply side, output from Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC producers decreased in August by 600,000 bbl/day to 96.3m bbl/day. Output from OPEC countries fell by 220,000 bbl/day in August to 31.57m bbl/day, led by losses in Saudi Arabia, Iraq and Angola.

Non-OPEC output also decreased in August, by 350,000 bbl/day, to 58.16m bbl/day, led by the US and North Sea volumes, which were curbed by seasonal maintenance activities.

“The plunge in global crude prices is expected to cut non-OPEC oil production by nearly 500,000 bbl/day next year, on a sharply weaker outlook for US supply, lower Russian output and structural declines in the North Sea,” said the IEA.

“The projected drop in output would be the largest since 1992, when non-OPEC supply contracted by 1m bbl/day from the previous year, with the collapse of the Former Soviet Union.”

The IEA added the fall in prices will tighten supply as oil producers are closing down “high-cost production from Eagle Ford in Texas to Russia and the North Sea”, paving the way for a potential loss in supply in 2016 of 500,000 bbl/day, the biggest decline in 24 years, according to the IEA.

“While oil’s recent volatility has been unnerving – Brent crude jolted from a six-year low below $43/bbl to above $50/bbl in the space of days – the lower price environment is forcing the market to behave as it should by shutting in output and coaxing demand,” said the IEA.

Brent crude futures for October delivery in the European markets on 10 September was at $48.15/bbl.

Source: IEA

Global refiners reached the traditional seasonal peak in August, before those in the northern hemisphere start their planned autumn turnarounds.

At the beginning of September, refinery margins remained “robust” although the shift towards distillates, instead of gasoline products, started to be noticed as refiners prepare for the heating season due to the winter, said the agency. 

The IEA expects crude oil low prices to continue strengthening global demand in the coming months even in economies such as China, where a slowdown in industrial sectors in under way.

“US motorists are taking to the roads, propelling domestic gasoline demand to an eight-year high. We expect China, the world’s second largest oil consumer, to keep up its crude purchases despite the recent stock market collapse, currency devaluation and steady stream of negative macroeconomic news,” said the IEA.