IEA cuts 2018 oil demand forecast as near $80 crude oil bites growth

Demand growth slows, non-OPEC supply increases as prices climb. Oil inventories below average for first time since 2014: IEA

By Grant Smith

LONDON
Petroleumworld 05 17 2018

The International Energy Agency cut forecasts for global oil demand growth in 2018 as the highest prices in three years put a brake on consumption.

“The recent jump in oil prices will take its toll,” said the Paris-based agency, which advises most major economies on energy policy. Crude has climbed 17 percent this year, trading near $78 a barrel in London on Wednesday.

OPEC and its allies have finally succeeded in their 16-month campaign to clear a global oil glut, with inventories falling below their five-year average for the first time since 2014, the agency said. Markets are set to tighten further as output sinks in Venezuela and the U.S. re-imposes sanctions on Iran. Yet the resulting price rally, while giving financial relief to producers, appears to be backfiring.

Besides lowering 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.

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.
Although the global economy remains robust, oil prices have surged about 75 percent 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.

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

The biggest unknown for the oil market now 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.

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, according to the report.

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.

The IEA, established in the 1970s to oversee the energy security of consuming nations, said it welcomed a statement by Saudi Arabia acknowledging the need to mitigate any shortage that might arise. 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.

Petroleumworld.com

Hit your target - Advertise with Us

Story by Grant Smith from Bloomberg.

bloomberg.com/ 05 16 2018

Copyright© 1999-2018 Petroleumworld or respective author or news agency. All rights reserved.

We welcome the use of Petroleumworld™ (PW) stories by anyone provided it mentions Petroleumworld.com as the source.

Other stories you have to get authorization by its authors. Internet web links to http://www.petroleumworld.com are appreciated.

Petroleumworld welcomes your feedback and comments, share your thoughts on this article, your feedback is important to us!

We invite all our readers to share with us
their views and comments about this article.
Write to editor@petroleumworld.com

By using this link, you agree to allow PW
to publish your comments on our letters page.

Any question or suggestions,
please write to: editor@petroleumworld.com

Best Viewed with IE 5.01+ Windows NT 4.0, '95,
'98,ME,XP, Vista, Windows 7,8,10 +/ 800x600 pixels