Oil Slides After IEA Turns Pessimistic, Sees Oversupply Extending On "Dramatic Deceleration" In Crude Demand

Tyler Durden's picture

One of the great oddities in oil price forecasts and analysis in the past year has been the fascination with the supply side of the oil market, which is perhaps understandable following the relentless chaos coming out of OPEC nations. However, as we have long contended, the true wildcard is the demand side, which has been deteriorating over the past 6 months, driven primarily by a slowdown in Chinese demand, coupled with a US peak driving season which was far less exciting than many had expected.

We were glad to see the IEA finally realizing just how important the demand side also was, when in its latest report released earlier today, the Paris-based organization revealed a much more pessimistic outlook on the state of the oil market, predicting that a sharp slowdown in global oil demand growth, coupled with ballooning inventories and rising supply means the crude market will be oversupplied into late 2017. The IEA had previously expected the market to show no surplus in the second half of 2016.

 "Our forecast in this month's report suggests that this supply-demand dynamic may not change significantly in the coming months. As a result, supply will continue to outpace demand at least through the first half of next year," the Paris-based adviser said in its monthly report. “As for the market’s return to balance -- it looks like we may have to wait a while longer.”


The IEA trimmed projections for global oil demand next year by 200,000 barrels a day to 97.3 million a day. It reduced growth estimates for this year by 100,000 barrels a day to 1.3 million a day, citing a “dramatic deceleration in China and India” this quarter coupled with “vanishing growth” in developed economies.

“Recent pillars of demand growth -- China and India -- are wobbling,” said the IEA, which counsels 29 nations on energy policy. “The stimulus from cheaper fuel is fading. Refiners are clearly losing their appetite for more crude oil.”

The IEA also noted that global refinery runs are expected to grow at their slowest pace in at least a decade this year, which will curb appetite for crude oil, just as inventories across the OECD rose to a fresh record high of 3.111 billion barrels, the report said. "With our more pessimistic outlook for the second half of 2016 refining activity and revisions to crude supply, the expected draws in the third quarter of 2016 are now lower, while the build in the fourth quarter of 2016 is higher," the IEA said.

More importantly, the IEA admitted that "global demand growth is slowing at a faster pace than the group initially predicted." The IEA left its forecast for demand growth for 2017 unchanged from its prediction in June at 1.2 million barrels per day, but cut its forecast for 2016 consumption growth to 1.3 million bpd, from 1.4 million.

"The key demand change in this report is the erosion of 300,000 bpd from the third quarter of 2016's global demand estimate, and the resulting removal of 100,000 bpd from the net 2016 forecast," the IEA said.

Here are the details from the report as summarized by Bloomberg and Reuters:

  • IEA cuts global oil demand fcast by ~200k b/d in 2H 2016 and throughout 2017 amid “fading” stimulus from cheaper fuel and “economic worries in developing countries,” monthly report shows.
  • 3Q16 demand growth seen at 0.8m b/d, lowest in 2 years, vs 1.2m b/d in last month’s report
  • “Dramatic deceleration” in China, India demand growth; “Severity of the 3Q16 slowdown has surprised”
  • Chinese growth “all but disappeared” amid economic restructuring, heavy flooding, factory closures ahead of G20
  • “Complete absence” of y/y oil demand growth in 3Q16 China
  • Demand growth in 2016 “will struggle” to rise above 1.3m b/d vs >1.4m b/d seen in previous report
  • Product prices no longer falling now that crude “hovering” near $50/bbl
  • “Unexpected” gains in European oil demand earlier in year have “vanished”
  • IEA sees European oil demand down y/y in 3Q16 for 1st time in 18 months; slowdown in France, Austria, Finland, Italy
  • Partial rebound expected in 4Q16 as temporary factors end
  • India’s y/y demand growth slowed to 16-month low in July
  • Heavy monsoon rains, “stuttering” industrial activity led slowdown

* * *

Despite oil's collapse and resulting investment cuts, global oil production is still expanding, although nowhere near the breakneck pace of 2015. High-cost non-Organisation of Petroleum Exporting Countries (OPEC) producers have been hit particularly hard.

However, the loss has been more than made up for by OPEC. Saudi Arabia and Iran have each raised oil output by over 1 million barrels a day since late 2014 when OPEC shifted strategy to defend market share rather than price.

As a result of the IEA report, WTI tumbled 2.5% and was trading just above $45/bbl, erasing virtually all of yesterday's dovish Brainard "risk on" gains.

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walküre's picture

Brainard's attempt at FED promo sounded hysterical. That blondie is in way over her head. Does she have any pull whatsover? I don't think so. Risk off and hikes on. Whether blondie likes it or not, the bond market is screaming rate increases from all sides. Regurgitating bonds between CBs doesn't count for anything. They will need to attract fresh blood or they're done.

Check the price of E.ON in Frankfurt. Massively sold energy stock despite good dividend yield. Knee caps are being cut somewhere..

Ham-bone's picture

The 0-64yr population segment within the nations responsible for 70% of global oil consumption begins outright shrinking in the next couple of years and continues shrinking thereafter indefinitely.  From +30 million new consumers annually all the way down to zero annual growth...and soon a shrinking pie every year...fewer consumers with means.  Combine this with technological advancements, environmental restrictions, and gaining market share among electric vehicles (etc. etc.) and the demand side of the equation is set to slow indefinitely regardless IEA claims to the contrary.  And as I suggested, China is likely to see peak oil consumption (as the EU, Japan, and US) all did when core population growth ceased.

 

http://econimica.blogspot.com/2016/06/global-peak-oil-demand-dead-ahead-but.html

Escrava Isaura's picture

Falling crude demand is part of the plan of liquidation by the bankers that run the world.

Why most here, even if they have no clue about oil, still can’t see this fact, it tells me that their biases blinds them of the ability to see it, and even less connect these dots.

 

We’re entering crunchy time, that is, liquidation of the general populations and its small business as well as remove the cash, their only ability to survive.

 

Then, the next step: Eugenics.

 

Ideally, not in my backyard, so start proxy wars and send them there. Ukraine, Mexico boarders, local militias’, and so on and so forth.

 

crakerman's picture

EIA be like : no more money for Saudi arabia and Russia.

Diplodicus Rex's picture

“vanishing growth”

I love these growth articles. It makes me feel all warm and fuzzy inside.

https://www.youtube.com/watch?v=u5iFESMAU58

"The greatest shortcoming of the human race is our inability to understand the exponential function." Dr Albert Bartlett

BorisTheBlade's picture

"global demand growth is slowing at a faster pace than the group initially predicted."

Yeah, whatever, will it fall? That's when it's gonna get interesting, as in: madly interesting.

THE DORK OF CORK's picture

The IEA is not a energy advisor to governments,  it policies orbit around the inflation of prices,  not rational input output systems.

Back in 1971 half of Irish ( lower) oil consumption was heavy fuel oil.

When or if we see a return of this oil from the international shipping component back into western energy systems we may see some sort of new equilibrium,  not before.

 

Huh Reeeally's picture

Has the IEA ever been correct in forecasting reserves? Seems their estimates are always wrong by a significant amount when stating US petroleum and distillate reserves.

THE DORK OF CORK's picture

I am afraid I know little about reserves.

I concentrate on net  demand dynamics because the data is more clear to me.

It's also far more important in my view. 

The  real structural costs created over time to escape ( artificially created)  prices is now overwhelming all human demand. 

The racetrack economy in Ireland has totally destroyed that society.

Stuff like road maintenance, public  lighting of empty roads etc etc. is swallowing up all demand.

The introduction of the second American materialist revolutionary pox has destroyed Europe. 

 

 

Citizen_x's picture

I have heard the term "Petro-dollar" and

that it's best friend is growth, increased

demand for oil.  Is debt exacerbating

a cyclical, economic downturn ?

THE DORK OF CORK's picture

Ireland before Yom Kippur 

http://m.youtube.com/watch?v=hvIHjRP5r3o

Ohh the promise of Industry....

British Pathe is so funny.

THE DORK OF CORK's picture

The era of Iea  stability...... 

Irish oil demand has inflated to 

119 kbd in 1980.

80 kbd in 1988

200kbd + in 2006

135 kbd in 2012

150kbd + by the end of this year.

In all of that time the population has been exposed to extreme rationing of net ( human level) consumption resulting in a collapse of the society.

 

THE DORK OF CORK's picture
  • "Unexpected” gains in European oil demand earlier in year have “vanished”
  • IEA sees European oil demand down y/y in 3Q16 for 1st time in 18 months; slowdown in France, Austria, Finland, Italy"

This is most likely the European diesel car credit experiment beginning to implode.

Outside of this credit bubble European economies do not really exist. 

Huh Reeeally's picture

Dramatic Deceleration in Crude Demand... sounds serious!

Those morons, we've been in a depression since 08, despite what the talking heads say we still haven't returned to the employment levels (FT decent jobs) or production levels pre-GFC, Caterpillar is a prime example of declining annual sales.

Most of the Fortune 500 would have share values closer to zero if they hadn't bought back so many shares, hidden cash in safe low tax jurisdictions and played the currency markets. No capital investment, no leadership and and hope.

Luckily the political types have a plan to eliminate the middle class and destroy blue collar jobs, that'll fix it!

THE DORK OF CORK's picture

These are IEA statements. 

At the very least take them with a pinch of salt until we get hard numbers. 

THE DORK OF CORK's picture

http://m.youtube.com/watch?v=VF6SxjLBfHk

 

Hollywood meets  1980s depression era mercantalist Ireland

 

So funny yet surprisingly descriptive.

" Taffin,  a complex character"

Ha ha ha 

 

My favourite so bad it's good movie

THE DORK OF CORK's picture

http://www.irishexaminer.com/ireland/state-archives-petrol-vouchers-were...

 

Further evidence of farcical Irish mercantalism which lead to a collapse of this society in the 80s

 

I think the real reason they did not do this is because the very nature of mercantalism would be exposed to the masses,  it was certainly not the cost.

THE DORK OF CORK's picture

http://m.youtube.com/watch?v=YoIJPwfsbqg

 

How it's done.

Forced mercantalism. 

Forced waste of resources so as to maintain concentration.

Notice: the socialist never really questions the bankers sovereignty over nations, he at most considers them bad people. 

south40_dreams's picture

Fill your tank and get a free six pack of flavored piss water!