Global oil stocks falling, markets tightening
In its monthly report, the International Energy Agency says global oil stocks are falling on increased demand from Europe and the US as well as decreased OPEC and non-OPEC production.
The agency also raised its 2017 global oil demand growth estimate to 1.6 million barrels per day (b/d) from 1.5 million b/d.
“Based on recent bets made by investors, expectations are that markets are tightening and that prices will rise, albeit very modestly,” the IEA said.
Rising demand in industrialized nations was key to global demand growing by 2.3 million b/d in the second quarter of this year. This was the highest quarterly year-on-year increase since mid 2015.
The agency reported the first fall in global production in four months, with a drop in output of 0.72 million b/d. Unplanned outages and scheduled maintenance in Libya, Russia, Kazakhstan, Azerbaijan and Mexico and the North Sea account for the decline.
For the first time in five months, OPEC’s crude output dropped last month, mostly due to unrest in Libya. The cartel’s production fell by 0.21 million b/d to 32.67 million b/d.
Compliance in OPEC’s crude supply cut pact rose in August to 82 per cent, up from 75 per cent in July. So far this year, overall compliance with the OPEC deal is at 86 per cent.
The EIA says these declines in output and increases in demand are helping global oil stocks rebalance.
“OECD commercial stocks were unchanged in July at 3.016 billion barrels, when they normally increase,” the IEA said in its report.
By the end of July, OECD product stocks were 35 million barrels over the five-year average, according to the EIA.
In the wake of Hurricane Harvey, the IEA said “Depending on the pace of recovery for the U.S. refining industry post-Harvey, very soon OECD product stocks could fall to, or even below, the five-year level.”
Post Harvey, oil markets in the Gulf Coast are easing and the IEA expects Harvey’s impact on global markets to be relatively short-lived, but it may possibly help inventories rebalance more quickly.
The global refinery throughput forecast for the third quarter by the IEA has been revised down by 0.7 million b/d due to Hurricane Harvey.
“This results in global refined product undersupply for the second consecutive quarter,” the IEA said.
The IEA said the US should strengthen its energy security to address catastrophic events, like hurricanes. It says one of the steps the US could take would be to add oil products to government controlled inventories.
“With U.S. export volumes expected to increase, the strategic importance of the Gulf Coast will only grow. The rise of the Gulf Coast as a major energy hub means that, in some respects, it can be compared to the Strait of Hormuz in that normal operations are too important to fail,” the IEA said.
