What a difference a month makes.
Less than four weeks ago the International Energy Agency warned of a tightening in the global oil market due to higher-than-expected demand data from China and the US.
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 flagged a bullish 240,000 b/d upward revision to its 2013 oil demand forecast.
This month, the IEA’s latest report paints a very different picture. Question marks over the sustainability of the global economic recovery have triggered a partial backtrack on the oil demand outlook for 2013.
Oil demand is now seen averaging 90.68 million b/d this year, 85,000 b/d lower than it had predicted in its previous report.
At the same time, surging volumes of US tight oil continue to underpin rising non-OPEC supplies of oil, and non-OPEC production is now projected to rise by 1 million b/d to 54.4 million b/d this year.
In addition, OECD crude and product stocks rose by 200,000 b/d last year, their highest annual increment since 2008, according to the IEA.
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The demand/supply upshot is a 100,000 b/d cut in the key “call” on OPEC crude, taking this year’s average to 29.8 million b/d and boosting the cartel’s effective spare capacity to 3.63 million b/d.
But all this has done little to dampen oil prices which gained 4% in London last month and were trading over $119/b Wednesday, just short of a nine-month high.
This apparent disconnect between growing OPEC spare capacity — as much a consequence of falling OPEC output as demand weakness — and oil prices was not overlooked by the IEA.
Part of blame for robust oil prices could be concerns that a new wave of political unrest in North Africa will “cloud” the outlook in a growing number of producers, the IEA suggested.
Rightly, the IEA also points to the growing divergence of London-based Brent oil with other crude benchmarks, particularly the US’ Midwest benchmark WTI.
Indeed, given that surging volumes of US light, tight oil make up most of the growing non-OPEC supply equation, some market watchers are predicting the emergence of a break-out, more independent US light crude benchmark in the near future.
Widening discounts to Brent have also not been confined the logistical bottleneck and shale oil boom in the US. The IEA also noted that Asian crude benchmarks, Oman and Dubai, have also seen there discounts to Brent grow in recent months.