The International Energy Agency (IEA) lowered its oil demand growth forecast for this year, citing weaker economic growth expected in some countries.
The Paris-based energy watchdog for rich countries said in its monthly report that it had cut its estimate of demand growth for the first three months of this year by 200,000 barrels per day to 1.1 million bpd, with weaker demand in Saudi Arabia, Iran, Russia, India, South Korea and the United States the main components.
The IEA said it raised its second-quarter demand forecast but cut for the second half of the year.
Overall, it trimmed forecasts for global oil demand growth this year by about 100,000 bpd to 1.3 million bpd, for a total 97.9m bpd.
The report also predicted a rebound in oil supply from producers outside of the Opec group.
As with Wednesday’s report from Opec in Vienna, the IEA sees the US as the main contributor to net growth this year of nearly 500,000 bpd after a dip last year of nearly 800,000 bpd, with the US expected to raise production by 680,000 bpd. US output already reached 9 million bpd last month after hitting a trough last September of 8.6 million bpd, spurred on by higher oil prices.
World benchmark North Sea Brent crude futures were up 10 cents at US$55.96 a barrel in afternoon trading Arabian Gulf time. They have averaged about $55 a barrel so far this year, up from about $45 a barrel for the whole of last year, as the production restraint deal by Opec and 11 non-Opec producers has begun to eat into the record world oil stockpile.
But the IEA underlined the dilemma the group faces.
“So far, the game has gone fairly well for producers,” the IEA says, noting that Opec over-complied last month, as it had in the previous two months, while the others are starting to contribute.
It estimates that Opec crude output fell by 365,000 bpd last month to 31.68 million bpd, with Saudi Arabia cutting by more than it has pledged, while Nigeria and Libya, which are exempt from cutting, have had further disruptions to their production.
With 390,000 bpd lower output from non-Opec – including an unplanned outage in Canada and lower North Sea shipments – the total drop in world supply last month was 755,000 bpd, the IEA estimates.
“Even at this mid-way point, we can consider what comes next” to the output deal, the IEA says. “A consequence of extending their output cuts beyond the six-month mark would be bigger implied stock draws, [but] this would provide further support to prices, which in turn would offer further encouragement to the US shale oil sector and other producers.“
Still, independent analysts see cause for optimism.
“The underlying dynamics continue to be quite constructive for prices,” says Eugene Lindell, a senior crude market analyst at JBC Energy in Vienna, noting that US stocks of crude, gasoline and other oil products declined by nearly 19 million barrels since the start of March, while China’s crude imports hit a record 9.2 million bpd last month.
Rising demand for oil products such as gasoline and jet fuel is expected to underpin demand for crude oil as refineries, which have gone through a heavy maintenance schedule in the first quarter of this year, come back online and ramp production back up.
“Oil products are definitely in the driver’s seat, with solid demand and plenty of refinery outages buoying ‘cracks’,” says Michal Meidan, an Asia analyst at the consultancy Energy Aspects. “If this is true, crude cannot be far behind.”
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