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undergroundnewsroom.com December 16, 2017


Oil tanks as gloomy outlook from IEA undermines Opec optimism

16 November 2017, 02:20 | Gordon Grant

Oil tanks as gloomy outlook from IEA undermines Opec optimism

US oil and gasoline inventories unexpectedly rise

A downbeat outlook for oil demand from a top energy watchdog and fears of rising US output sparked a sell-off in crude futures this week, but analysts say the market was already poised for a pullback.

December crude was down 69 cents, or 1.2%, from Tuesday to $55.01 a barrel on the New York Mercantile Exchange.

Crude oil inventories rose by 1.9 million barrels in the November 10 week to 459.0 million, higher than market expectations, according to U.S. Energy Information Administration Wednesday.

The IEA cut its oil demand growth forecast by 100,000 barrels per day (bpd) for this year and 2018, to an estimated 1.5 million bpd and 1.3 million bpd, respectively, as warmer temperatures were expected to weigh on consumption while rising output might add to glut in the crude supplies.

The IEA report countered the Organisation of the Petroleum Exporting Countries (Opec), which just a day earlier said 2018 would see a strong rise in oil demand.

"Using a scenario whereby current levels of OPEC production are maintained, the oil market faces a hard challenge in 1Q18 with supply expected to exceed demand by 600,000 bpd followed by another, smaller, surplus of 200,000 bpd in 2Q18", the agency said.

The energy policy adviser to developed nations knocked down its growth forecast by 100,000 barrels a day for each year, projecting that oil markets will remain oversupplied in the first half of 2018.

Oil tanks as gloomy outlook from IEA undermines Opec optimism
Oil tanks as gloomy outlook from IEA undermines Opec optimism

OPEC and some non-OPEC producers including Russian Federation have been withholding production this year to end years of oversupply.

“We are now witnessing a period of expansion in USA oil and gas production that matches or exceeds any historical records ever achieved by the oil and gas industry, ” said Tim Gould, head of the Energy Supply Outlook division.

"The recent price support, namely the tension in the Middle East, has been swept aside as rising rig counts and USA shale output (are) in the focus of traders", PVM Oil Associates analyst Tamas Varga said.

Additionally, while United States production is expected to ramp up, IEA projects that global demand will decrease by 100k barrels per day in 2018 - ironically, due, in part, to warmer temperatures.

According to the IEA, China will overtake the U.S. as the largest oil consumer around 2030, and its net imports will reach 13 million barrels per day in 2040.

"This is the equivalent of adding another China and India to today's global demand", the IEA said in its report.

"Even after some modest reductions to growth, non-OPEC production will follow this year's 700,000-bpd growth with 1.4 million bpd of additional production in 2018 and next year's demand growth will struggle to match this", the IEA said.

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