IEA’s signals mixed, but it sees a definite rise in demand

The International Energy Agency provided a characteristically mixed bag of monthly oil market indicators this week, with key themes of an outlook for higher oil demand running parallel to apparent market oversupply.

The report’s headline forecasts of higher than expected oil demand in Q4 and next year were tempered with comments of continued “sluggish” global economic growth.

Next year’s oil demand expectations were raised by 110,000 b/d to 90.5 million b/d. Meanwhile, Q4 demand was hiked by 435,000 b/d more than forecast last month. By way of contrast, the IEA had previously slashed its Q4 oil demand estimate by combined 800,000 b/d since June.

Asia and Europe are increasingly going their opposite ways regarding oil demand, the IEA’s figures suggest, with the economic growth in China more than making up for Europe’s current malaise.

Surprisingly, the latest data shows European oil demand dived in the third quarter, undergoing its steepest year-on-year contraction since the 2008-2009 financial crisis.

But the IEA’s the demand and supply figures still broadly support the current bearish market consensus the view that oil markets are generously supplied.

Importantly, the IEA’s estimate for world’s need for OPEC crude next year was maintained at 29.9 million b/d, some 1.2 million b/d less than the oil producer group’s November production levels of 31.22 million b/d.

OPEC’s widely-anticipated decision to hold its 30 million b/d output target steady Wednesday did nothing to dispel this bearish view, especially if the producers group continues pumping more than 1 million b/d above its own ceiling and even more than that above the estimated “call” on OPEC crude.

Outside OPEC, the supply picture is made further bearish with non-OPEC supply expected to grow almost 900,000 b/d to 54.2 million b/d next year, supported by surging output from US tight oils.

The agency noted that this would be the fourth largest annual growth for non-OPEC supplies in the last decade, and could surprise to the upside if US prices remain high.

To balance — or confuse things — further, the IEA’s numbers pointed to the reversal in October of a seven-month streak of often counter-seasonal stock builds. Preliminary data indicates a further stock draw in November, which doesn’t line up with the idea of OPEC output being well above its “call.”

In terms of oil prices, the apparent oversupply continues to confound some market watchers, resigned to the fact that heightened geopolitical risks have kept prices stubbornly high this year. Despite OPEC production this year averaging 1.5 million b/d above its targets, Brent futures prices are on track to surpass 2011 record levels this year.

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