Some numbers in the global oil supply/demand balance have shifted fairly dramatically in just one month’s time, possibly putting an end to the big world inventory build.
You can look at numbers until you are cross-eyed. But if you’ve only got a minute to analyze, you look at what the International Energy Agency says is the call on OPEC crude, and you compare that to what OPEC actually is producing. The call is calculated by taking IEA’s estimate of global demand, subtracting its estimate of non-OPEC supply, subtracting its estimate of OPEC NGL production, and you have the call.
So the category that the IEA refers to as the call plus stock changes was 30.7 million b/d in the fourth quarter of 2012, 30.1 million b/d in the first quarter and 29.5 million b/d in the second quarter. Meanwhile, beginning with last August, Platts’ monthly estimate of OPEC production went 31.54 million b/d, 31.15, 31.17, 31.08, all well above the call. And then in December, OPEC production dropped to 30.65 million b/d, a 430,000 b/d decline.
So the imbalance between actual output and the call, which looked like it would continue, was suddenly narrowed on the back primarily of a drop in Saudi output of 370,000 b/d, to 9.45 million b/d in December. That marks a Saudi decline of more than 500,000 b/d just since August, when the kingdom hit the 10 million b/d mark.
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All signs point to the Saudis reacting to weaker demand. But they couldn’t have been the only country facing a slower customer book. Yet the UAE didn’t cut its output, and Kuwait’s decline was minimal. (Iraq dropped about 250,000 b/d, but part of that was due to the ongoing dispute over Kurdish output and payments to contractors). It was Saudi Arabia almost single handedly picking up the mantle of swing producer, and taking a large chunk of supply off the market. That gap between the call and actual output — which the IEA says led to a seven-month build in global crude inventories that ended in October –might not be as wide going forward as it looked just two months ago.
On the demand side, the increase in Chinese demand tracked by Platts’ monthly survey shows a remarkable turnaround. In August, our numbers showed Chinese demand at 8.95 million b/d, a year-on-year decline of 1.5%. That marked the nadir of a long slide in year-on-year percentage changes after years of double-digit or high single-digit rates of increase.
But suddenly, the Chinese thirst for oil has reignited. Our numbers showed October demand at 9.75 million b/d, up 6.6% from the prior October. And the November numbers showed a hefty increase of 9.1%, to 10.5 million b/d. (The IEA report speculated that its own estimate of a growing gap between supply and demand in China could reflect a renewed effort to build the country’s strategic petroleum reserve.)
If Dated Brent is the best measure of international prices, these two sets of numbers — one on the supply side, one on the demand half of the equation — haven’t had much impact. Brent is up all of $2/barrel in a month. (WTI, boosted by the latest expansion of the Seaway Pipeline reversal, is up about $7 in that time). But two pieces of conventional wisdom from just a few months ago have clearly been overtaken by events.