Monday, 20 November, 2017

Crude Oil Inventories Decline, but Imbalance to Continue: IEA

Crude oil is extracted from the Monterey Shale formation near Bakersfield California Crude oil is extracted from the Monterey Shale formation near Bakersfield CaliforniaAlamy
Nellie Chapman | 14 November, 2017, 20:39

The Paris-based IEA revised demand growth down by 100,000 barrels per day (bpd) for both 2017 and 2018, for an increase of around 1.5m bpd this year, to 97.7m bpd, and 1.3m next, to 98.9m bpd, which could push the market back into a surplus in the first half of next year.

Meanwhile events in Saudi Arabia, OPEC's kingpin, "have added extra momentum to the rally that has driven oil prices from lows of $45/bbl (Brent) in late June to around $63/bbl recently", the IEA said. "This is why, absent any geopolitical premium, we may not have seen a "new normal" for oil prices". Oil inventories in the world's richest nations fell by 40 million barrels in September, breaking below 3.0 billion barrels for the first time in two years, driven in part by Hurricane Harvey, which shuttered much US refining capacity in August.

"EVs are coming fast, but it is still too early to write the obituary for oil", the IEA states, with global oil demand steady at 104 million bpd by 2040, compared to 94 million bpd in 2016, according to its most-likely scenario.

Investors increasingly opted not to bet on higher oil prices, following a report from the International Energy Agency showing it expects rising USA shale oil and gas production to at least be among the biggest gains in the history of the industry. "This is a continuation of the strong demand growth we are seeing in our short term oil market analysis", the report said.

The U.S. shale surge could also mean an era of lower-for-longer oil prices.

"Although Canada has potentially prolific shale gas plays ... their estimated development cost is higher on average than in the Permian or the Appalachian Basin and they are further away from the demand hub", the IEA said. However, this is expected to cut only 2.5 million barrels per day (bpd), or about two per cent, off global oil demand by that time.

However, even rapid growth in the electric vehicle fleet would be unlikely to have a substantial impact on oil consumption for passenger transport until the mid-2020s, it said.

Also weighing on the oil price, is the increasing prospect of a slower pace of economic growth in China.

Between 2017 and 2040 the IEA estimates that more solar power capacity will be added globally each year than any other source of energy, with an annual average increase of almost 70 gigawatts.

Crude oil markets are expected to be oversupplied in the current quarter and going into 2018, the IEA said.