So China again surprised to the demand upside in the IEA’s latest monthly oil market estimate. As a result, it provided, yet again, the impetus for an apparent tightening of the oil markets fundamentals at least in the short-term.
The West’s energy watchdog hiked its global oil demand estimate for the final quarter of 2012 by a massive 710,000 b/d and pushed up its forecast of demand this year by 240,000 b/d to 90.8 million b/d. This comes amid a sharp pullback in Saudi oil production of 600,000 b/d since October (half of which came in December alone) from 30-year highs, underpinning the IEA’s more bullish view.
So with 400,000 b/d more demand for OPEC’s oil in the fourth quarter than previously thought, the call on OPEC’s oil was around 30.8 million b/d in the three months to December, when the cartel was pumping 30.6 million b/d.
That’s a legitimate oil market pinch for sure, but not necessarily a tightening for very long.
Although the IEA estimates that OPEC dropped back its production in December to 30.65 million b/d, that still stands 850,000 b/d above the Q1 OPEC call and is ahead of what the market needs on average this year. In 2013, the IEA’s the call on OPEC’s oil is an average 30 million b/d, below current production levels.
Blog entry continues below…
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Interestingly, BP earlier this week predicted that OPEC’s spare capacity will swell to over 6 million b/d by 2015, the highest since the late 1980s, up from some 2.5 million b/d currently. This will come, BP said, as a result of fast-growing volumes of tight oil and biofuels from the US which will eat into OPEC’s market share of the world’s oil supply, albeit only over the next two years.
To be fair, the IEA acknowledged that the current oil market is more dependent on “political risk writ large,” including tax and trade policies, than on looming fundamentals.
But unless demand side forecasts surprise to the upside again sometime soon, it may be that the IEA’s market tightening may prove to be short lived indeed.
The Saudis were at 10 million b/d just a few months ago. So any sort of tight market for at least another 400k-500k b/d market could easily be filled by the kingdom’s spare capacity.