Draw on commercial stocks in October is not the start of a trend, but fears of reaching capacity are overstated: IEA

The Organization of Economic Cooperation and Development saw commercial stocks of crude oil draw down for the first time in seven months, according to the International Energy Agency’s (IEA) December Oil Market Report. Commercial stocks stood at 2,971 MMBO at the end of October.

While the draw comes as welcome news for markets that have remained critically oversupplied during the last year, the IEA believes that inventories will continue to build until late 2016, although at slower rates than seen this year. Fears of reaching “the top of the tank” in storage remain overstated, however, said the IEA, with new and spare storage expected to absorb the projected extra 300 MMBO of stocks.

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Oil demand expected to moderate as supply continues to grow

The IEA maintained its expectation that world crude oil demand would grow by 1.2 MMBOPD in 2016, down from a peak of 2.2 MMBOPD of growth in Q3’15. Early indicators for Q4’15 show growth easing into next year’s target at about 1.3 MMBOPD of year-over-year growth. Overall demand growth for the year is expected to stand at 1.8 MMBOPD led by China, the U.S., and – somewhat surprisingly – Europe.

Global oil production continued to trend higher, with 50 MBOPD added in November, bringing total global production to 96.9 MMBOPD. The growth in global output was largely led by OPEC, which hit a three-year high level of production at 31.695 MMBOPD. OPEC’s increased production came almost entirely from Iraq, which offset losses in other member countries, including Saudi Arabia, with a 247.5 MBOPD increase in production.

OPEC OMR Nov Production Numbers

OPEC’s decision during its bi-annual meeting earlier this month to remove its production quotas altogether sent oil to a seven-year low. The move signals disunity within the group as some members lobbied at the meeting to lower the old production cap in order to raise prices.

“OPEC’s decision to scrap its official production ceiling and keep the taps open is a de facto acknowledgement of current oil market reality,” said the IEA report. “The early December move appears to signal a renewed determination to maximize low-cost OPEC supply and drive out high-cost non-OPEC production – regardless of price.”

Non-OPEC supply held steady at 58.5 MMBOPD, according to the IEA, but annual growth slowed to below 300 MBOPD from 2.2 MMBOPD at the start of 2015.

Global refinery runs rose by 1.4 MMBOPD in November to 79.9 MMBOPD as the maintenance season drew to a close, reports the IEA. Margins were down slightly, but still strong, said the agency. Lower crude oil prices have driven demand for gasoline higher.

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