IEA Holds 2012 Demand Outlook Steady, Raises Price Assumption

The International Energy Agency (IEA) forecast global oil demand at 89.9mn b/d for 2012, up by 800,000 b/d (0.9%) over 2011 and little changed from the previous outlook. In its latest monthly Oil Market Report , the Paris-based agency said the negative influence of a higher price assumption counteracts stronger baseline demand. “Given the recent gains seen in oil prices, the demand projections now incorporate a higher underlying price assumption,” the report said, “acting to constrain consumption… More robust than expected preliminary February data equate to a higher base, or starting point, for the 2012 consumption estimate, thereby supporting demand.” Demand-wise, the regional breakdown is little changed, the IEA said. Asia will continue to dominate and there is now stronger growth seen in the Middle East and former Soviet Union. It said that more price sensitive regions, such as North America, have had demand estimates lowered. The report said the price of Brent crude looked to average $115/B in 2012, nearly $10/B more than assumed for 2012 in 4Q11.

Global oil supply fell by 400,000 b/d to 90.3mn b/d in March, with higher OPEC NGL and crude production only partially offsetting a 500,000 b/d decline in non-OPEC countries, the report said. Global oil production is 2.8mn b/d higher than a year ago due to increasing output of OPEC crude and NGLs. During March, non-OPEC supply fell by 500,000 b/d to 52.7mn b/d, and March OPEC supply held near three and a half-year highs, rising by 135,000 b/d to 31.43mn b/d. Higher output from Iraq, Libya and the UAE “more than offset reduced Iranian and Angolan supplies,” the report said.

First quarter fundamentals show a clear shift from the “seemingly relentless” tightening evident over the prior 10 quarters, the IEA said. “An increase of 1.2mn b/d in OPEC crude and gas liquids supply versus 4Q11, alongside sluggish oil demand, imply a potential global build in stocks of over 1mn b/d, despite patchy non-OPEC supply performance,” the report said. Commenting on stock builds by Saudi Arabia and China, the agency said: “The cycle of repeatedly tightening fundamentals evident since 2009 has been broken for now. March and April habitually represent a seasonal low point in global crude demand, so it is perhaps not surprising that extra supply has been channeled into producer or strategic storage.” Furthermore, in reference to the international sanctions against Iran, the IEA said it “cannot discount the possibility that prices will remain high so long as geopolitical uncertainties remain. Further surprises almost inevitably lurk around the corner for both demand and supply. But for now at least, the earlier tide of remorseless market tightening looks to have turned.”

OECD industry total oil inventories fell by 12.4mn barrels in February to 2.63bn barrels, compared with a five-year average decline of 38.8mn barrels, the report said. Days of forward demand cover rose by 1.2 days to 59.6 days, 2.5 days above the five-year average. Preliminary data indicate a 22.6mn barrels increase in March OECD industry inventories, in contrast with a five-year average 10mn barrels draw. Crude oil and product stocks rose by 16.7mn barrels and 4.9mn barrels respectively.

IEA Supply/Demand Estimates (Mn B/D)

Note: Figures may not add up due to rounding.

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