IEA Cuts 2018 Oil Demand Forecast On Soaring Oil Prices

Yesterday, we observed that in logical consequence to sharply higher interest rates, US consumer loan demand had slumped in recent weeks, despite increasingly easy credit conditions: an outcome which for many economists is a harbinger to an upcoming recession, as households hunker down and begin to deleverage.

Now, following a similar causal chain, this morning the International Energy Agency also cut forecasts for global oil demand growth in 2018 due to oil's recent price surge, as the highest prices in three years put a brake on consumption. As a result, the agency trimmed its 2018 world demand growth projection by 40,000 barrels a day to 1.4 million a day, projecting total consumption at 99.2 million barrels a day, down from 99.3mmb/d, still higher than the 97.8mmbpd global oil demand in 2017.

“The recent jump in oil prices will take its toll,” said the Paris-based agency, which serves as an advisor to most major economies on energy policy. Crude has jumped 17% this year, trading near $78 a barrel in London on Wednesday, and approaching the stated Saudi target of $80/barrel at which point the Aramco IPO once again becomes feasible.

As one would expect, the demand forecast by the IEA - which is not a cartel of oil producers and is therefore less biased - differs greatly from the forecast by OPEC - which is a cartel of oil producers and therefore is programmed to see only the best possible outcome no matter how high the price. As shown in the chart below, whereas the IEA demand forecast topped out, that of OPEC sees nothing but blue skies ahead.

The IEA commented on the 16-month campaign by OPEC and its allies to slash a global oil glut, which the agency said had been finally successful, with inventories falling below their five-year average for the first time since 2014. Markets are set to tighten further as output sinks in the economic disaster that is Venezuela and the U.S. re-imposes sanctions on Iran.

And yet the resulting price rally, while giving financial relief to producers, appears to be backfiring: in addition to cutting its demand outlook, stronger prices also prompted the IEA to increase estimates for supply from OPEC’s rivals, particularly the U.S. Production outside the Organization of Petroleum Exporting Countries will grow by 1.87 million barrels a day this year, or 85,000 a day more than previously thought, Bloomberg reported.

But back to the demand forecast, the IEA said that while the global economy remains robust (if clearly topping over), oil prices have surged about 75% since last June, and “it would be extraordinary if such a large jump did not affect demand growth,” the IEA said. The “effect of higher prices should in particular become apparent in gasoline demand in the next few months,” it said, confirming what we noted last month, namely that much of the Trump tax cut effect will soon be wiped out due to higher gas prices, putting further pressure on the US economy.

Developing nations are especially sensitive to crude’s rally after many of them phased out fuel subsidies when prices were lower, the agency added.

For the immediate future, the biggest unknown for the oil market is the impact of U.S. sanctions on Iran, which are being reimposed after President Donald Trump abandoned an international nuclear accord with the country, the world’s fifth-largest oil exporter.

While it’s “too soon to say what will happen this time,” the agency said, Iran’s fellow OPEC members could fill the gap because their pact to restrain supply leaves them with spare production capacity.

To be sure, there is likely more than enough excess capacity within OPEC to pick up the slack for Iran. OPEC’s Gulf producers and Russia have about 1.3 million barrels a day of output idle, more than the 1.2 million barrels a day of Iranian exports that were lost when sanctions were previously imposed in 2012, the IEA calculated.

Although OPEC and its partners have resolved to curb supply until at the least the end of this year, they’ll meet next month to review their policy.

Furthermore, markets face other disruptions besides Iran, with Venezuela’s output plunging to the lowest since the 1950s as its economy unravels.

“The potential double supply shortfall represented by Iran and Venezuela could present a major challenge for producers to fend off sharp price rises and fill the gap,” the IEA said.

Could the Iran sanctions be the catalyst that causes the OPEC production cut deal to unravel? Find out in a few short seeks.

Comments

Laowei Gweilo DingleBarryObummer Wed, 05/16/2018 - 07:12 Permalink

IEA also thinks by 2023 oil will be down to 1.0 mb/d, regardless if this quarter it's 1.4 or 1.5.

which is an interesting thing to point out today when just the other day that "The Most Underappreciated Story In The Oil Market" posted story (from Oil Price) kinda argued the opposite... which was really just a summary of a Bloomberg article (why not source the real author?) that noted that basically every month this year (except for a shortened Feb which included CNY) China oil demand surpassed its all-time records by at least 6.5%...

China pays like 1.45 a litre for gas, too... that'd be like $5.30 a gallon... real oil elasticity there /s hhhh

just saying... one day it's bullish oil cuz china oil demand is a boogeyman; next day it's bearish oil cuz the us debt/spending boogeyman...

only real common theme to these chosen linked stories I see on these is that they always got a boogeyman ;p

In reply to by DingleBarryObummer

Sapere aude Laowei Gweilo Wed, 05/16/2018 - 08:02 Permalink

Not just China. There are countries that are not even developed yet, whose oil requirements will be massive, including India.

Yes we can find more oil, but can we do it viably....SHALE SHOWS US THE ANSWER IS A DEFINITE NO!

Any idiots can spend $100 to produce something to sell at $60

All the talk from these companies trying to raise more capital is about how technology has made it more profitable, how cost oil is only $30 YET THEY ALL SHOW SUBSTANTIAL LOSSES AT $60

In reply to by Laowei Gweilo

bshirley1968 Sapere aude Wed, 05/16/2018 - 08:53 Permalink

Not so sure about that "massive" oil demand by those undeveloped countries. Do you imagine the whole planet being like LA, Chicago, NY, or Tokyo, Beijing, and Paris?

Never going to happen. The more money and power that gets in the hands of a few will dictate that more and more of the rest will have less and less. Plus, there isn't enough resources on the planet so that everyone can live like a middle class American or Western European.

You are definitely right about the "cost" to produce oil. They need higher prices but the zombie economy can't handle paying more. Higher prices will kill demand because there us no growth in the West, and China is slowing down. If the US economy tanks....already is....already and oil demand takes a hit, there will be some major shock waves felt around the world. Price of oil....in dollars....will go up to offset loss of revenue, and demand will continue to crumble....I think they call it stagflation. That is where dollar value comes into focus. They will print big time to try and keep the boat afloat, and the rest of the world....who has awakened to the fragility of our situation. ...will be ready to move on.

Which brings us to the only possible solution......WAR!

In reply to by Sapere aude

BritBob Wed, 05/16/2018 - 06:26 Permalink

Time to invest in the South Atlantic?

Falkland Oil Project Eyes Green Light This Year as Prices Rise - 11 Jan 2018

“The project of course is looking a lot better at $68 a barrel,” Tony Durrant, chief executive officer of Premier Oil, which holds 60 percent of Sea Lion, said in an interview on Thursday. “It’s a project that’s very sensitive to oil prices.” (Bloomberg 11 Jan 2018)

What about Argentina? And what does the law say about the ownership of natural resources?

Argentina's Continental Shelf Claims and The UN CLCA Commission (1 page):-

https://www.academia.edu/33898951/Argentinas_Continental_Shelf_Claims_-The_UN_CLCS_Commission

Sudden Debt Wed, 05/16/2018 - 06:30 Permalink

1.63 euro's per liter of diesel in Belgium right now... 

 

the last time this happened was RIGHT BEFORE THE CRASH!

 

and everybody predicted back then that oil would go to 200 dollars a barrel...

 

And right now, in Brussels, there are protests because the government is talking about raising the retirement age to 70 years old and the lemmings are catching up...

THE COUNTRIES ARE BROKE AND GOING INTO A CRISIS! 

reminds me of the ant and the cricket story...

 

When inflation will be the only way out, they'll all panick to save what they've got and won't have a clue how to do it untill it's to late.

farmboy Wed, 05/16/2018 - 06:49 Permalink

IEA is an American run outfit which has the sole goal to manipulate opinions on oil to serve geopolitical stuff. Same can be said from Goldman Sachs and others. No credibility, bullshit analysis.

Nomad Trader Wed, 05/16/2018 - 06:54 Permalink

It's funny how the inflation of most things don't matter - people are still conned by the media that there is no inflation. But when it comes to things like oil, everyone knows it. Time to short the long end of the bond market. 

RichardParker Wed, 05/16/2018 - 06:56 Permalink

As one would expect, the demand forecast by the IEA - which is not a cartel of oil producers and is therefore less biased...

Please tell me you're joking.  The IEA is probably one of the most corrupt and INCOMPETENT government agencies on the planet.  Their predictions are less accurate than Gartman's.

 

nmewn Wed, 05/16/2018 - 06:59 Permalink

I'm crazy about the words...

Forecast. Projection. Estimate.

...they just sound so, real, solid, confirmed and worth placing a really large wager on! ;-)

mototard Wed, 05/16/2018 - 07:17 Permalink

Yesterday's topic, but...

 

The loss of Malaysian Airways Flight MH370 may have had significant political connections.  Aircraft Captain Shah had strong ties to former Malaysian Deputy Prime Minister Anwar Ibrahim, a Muslim Brotherhood follower.  Capt Shah and Mr. Ibrahim were both from Penang Malaysia.   Mr. Ibrahim had been jailed twice, both times on what were likely trumped up politically inspired charges.  Capt Shah was reportedly “utterly frustrated” with the judicial vendetta against Mr Ibrahim who was jailed again just hours before MH 370 took off on its ill-fated flight. 

https://www.patreon.com/posts/special-report-18834838

Cloud9.5 Wed, 05/16/2018 - 07:21 Permalink

The energy deniers all blame the 2007/2008 contraction on the housing bubble.  This time around, they will blame it on the carmageddon and the student loan crisis.  Spiraling oil prices will as before remain the back story that no one in the industry wants to talk about.

The simple fact that net energy production is contracting and that western civilization is approaching and possibly has already passed the point of no return will be hidden for as long as possible.

shortonoil Wed, 05/16/2018 - 07:57 Permalink

Crude oil has a price at which the economy can no longer afford it without increasing its debt. That price point is presently at $46/ barrel. The impact will first be felt by the weaker economies; the emerging markets. Expect increasing stress in the FX markets for their currencies. The price of oil will fall back to its Maximum Affordability level as the world's economies retreat in the face of artificially elevated prices. The Iranians were correct; the price is being manipulated, and the world's economies will contract significantly as a result.

 

http://www.thehillsgroup.org/depletion2_022.htm

Sapere aude Wed, 05/16/2018 - 07:57 Permalink

IEA less biased....ZH are having a laugh again.

Did you not know how they tried to stifle a whistleblower.

The IEA is based on a membership of 30 countries that are primarily energy requirers!

Do you not recall the whistleblower explaining how the IEA was deliberately downplaying oil resources, deliberately understating depletion rates.

That is why the Ponzi shale came forward, to give the illusion of an "oil glut" when its the opposite.

With the Permian now expected to decline much sooner, even though its still producing oil at a loss, what happens when even the Ponzi shale oil produced is taken out of the equation.

What about the leaked cables from Saudi showing their oil was overstated by some 40%

 

  Australia

https://www.reuters.com/article/us-iea-oil-idUSTRE5A85JT20091109

http://www.cbc.ca/money/story/2009/11/10/iea-whistleblower-accuses-agen…

    Silver Savior Wed, 05/16/2018 - 10:17 Permalink

    People are starting to ride bikes to where I work. And more are talking about it. I have a little Accord so I never care about gas. The big truck big misplaced ego small dick crowd is getting nervous about the prices.

     

    hanekhw Wed, 05/16/2018 - 11:24 Permalink

    When you trumpet 'inevitable' price increases for months before the peak consumption season something very natural happens. People believe you and they adjust to the 'inevitable' price increases making them 'inevitably' lower than 'expected'.