Production growth nearly flat
Month-over-month production growth was nearly flat from August to September, according to the International Energy Agency’s (IEA) September Oil Market Report. World oil supply held steady near 96.6 MMBOPD as lower non-OPEC production was offset by a slight increase in OPEC crude.
OPEC crude supply rose by 90 MBOPD in September to 31.72 MMBOPD as record production from Iraq more than offset a slit dip in output from Saudi Arabia. The IEA forecasts demand growth and slightly higher non-OPEC supply lowering the 2016 call on OPEC by 0.2 MMBOPD from last month’s prediction of 31.1 MMBOPD.
OPEC’s own monthly report for October, released yesterday, puts the call for its production at 29.6 MMBOPD for 2015 and 30.8 MMBOPD for 2016. OPEC’s release yesterday pegged production at 31.57 MMBOPD based on secondary sources, an increase of 0.12 MMBOPD from August that sent prices retreating from $50 per barrel.
Non-OPEC accounted for just under 40% of the 1.8 MMBOPD annual increase in total oil output, with lower oil prices and steep spending curbs expected to cut non-OPEC output by nearly 0.5 MMBOPD next year.
Demand growth expected to moderate
The IEA expects demand growth to begin moderating from its five-year high of 1.8 MMBOPD per year, citing the International Monetary Fund’s latest World Economic Outlook’s expectation of lower economic growth as the main source of pressure on further growth. The IMF cut its expectations for 2015 and 2016 economic growth by 0.2% in its latest report, which the IEA anticipates will see oil demand growth slow by 0.6 MMBOPD to 1.2 MMBOPD next year.
While the IEA downgraded its expectations for future demand growth, Roger Read of Wells Fargo Securities pointed out that, historically, lower oil prices tend to push demand growth higher. “The IEA downgraded 2016 oil demand to just 1.2%,” said Read. “This stands in contrast to our estimate of 1.5%.” Wells Fargo expects that lower prices will continue to prop up demand growth, potentially balancing markets mid-2016 or late 2016/early 2017.
Markets likely to remain oversupplied through 2016
Even as production begins to flatten out and demand growth remains positive, the IEA expects the oil market to remain long through next year, it said in its report today. OECD commercial inventories saw gains of 28.8 million barrels in the month of August, nearly twice the seasonal average, and extended overall inventories to 2,943 million barrels. “Crude stocks were flat as product stocks built on record global refining runs,” said Read.
The continued growth of inventories around the globe, with the added expectation of Iran’s crude production soon joining the mix, will contribute to the market staying oversupplied for longer, according to the IEA.