IEA Increasing Its Demand Growth Outlook for 2015 and 2016

The global Energy Agency said in a monthly report that it was steeply raising its demand growth outlook for this year and 2016, and expected non-Opec supply growth to decline next year, with US producers hardest hit. “Our latest balances show that while the overhang will ease from a staggering 3m bbls/day in 2Q15, its highest since 1998, the projected oversupply persists through 1H16”, said the IEA.

“Oil’s plunge below $50/bbl from triple digits a year ago has seen demand react more swiftly than supply”.

The IEA stated that it saw global oil demand rising by 1.6 million barrels per day (bpd) in 2015.

The country’s crude oil production fell by 80,000 barrels per day in June compared to May, to settle at 1.56 million bpd. Concurrently, the WTI slipped 2.34% or $1.05 to $43.91, as fresh oil market data published by OPEC indicated the cartel’s production volumes had reached a new record high in July.

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Last month, OPEC stated it would not cut current production levels. According to secondary sources cited by the report, OPEC produced 30.51 million bpd in July – 1.5 million bpd more than its 30-million-bpd target.

Oil prices dived as crude output from the Organisation of Petroleum Exporting Countries ( OPEC) increased in July.

Oil prices rose on Wednesday on signs of stronger global demand for crude, with US futures rebounding from a six-year low reached in the previous session.

While OPEC will likely continue its output-maximizing strategy, a sharply lower rig count and significant reductions in drilling capex in the United States will slow production to rates that will sharply impact the oil market next year.

Record inventories will expand further even as consumption climbs by the most in five years in 2015 and supplies outside OPEC contract next year for the first time since 2008, the IEA predicted. Saudi Arabia put out slightly less crude, while Iraq and Iran bolstered production.

“Persistent macro-economic strength” supports above-trend growth of 1.4 million barrels a day in 2016, the IEA added. Non-OPEC suppliers will raise output by 960,000 barrels a day this year to 57.46 million a day. But, it is clear that these estimates do not take into account the now distinct possibility of higher Iranian supply coming into the market in 2016 due to the end of economic sanctions.

“While reduced capital spending will help rebalance the market in the short term, it will no doubt also lead to lower future supply growth”.