Posted on 06/12/2015 5:44:52 AM PDT by thackney
The world’s appetite for crude is making a comeback as economies improve and cheap oil draws out more buyers, the International Energy Agency says.
In its monthly oil market report released Thursday, the IEA revised its estimate of daily global oil demand in the first half of the year by 400,000 barrels, as the United States and other developed nations reversed a “long declining, seemingly entrenched, trend to a rising one.”
Worldwide, daily demand was 93.3 million barrels for the last six months, up 1.6 million from the same period last year. And the IEA believes demand could rise to 94 million barrels for the whole year, up 1.4 million barrels from 2014, when demand had collapsed in China and elsewhere.
But the Paris-based group, which has a membership of 29 oil-importing countries, said the momentum in the oil markets could slow in the second half of the year as lower crude prices lose their luster and as the passing economic bounce fades in developed nations.
And meanwhile, the IEA is also predicting oil supplies will ratchet up again this year. Supplies slipped by 150,000 barrels a day last month, dipping to 96 million barrels, but it was still 3 million barrels higher than it in the same month last year.
It estimated OPEC production grew to a three-year high, climbing by 50,000 barrels a day to 31.33 million barrels a day. That’s more than twice the growth figure the 12-member Organization of Petroleum Exporting Countries had provided in its own monthly oil report on Wednesday.
The IEA said Saudi Arabia, Iraq and the United Arab Emirates pumped record monthly levels of crude in May, and that it doesn’t expect OPEC to let production slip below 31 million barrels a day in coming months, as “Middle East producers sustain higher rates to preserve market share and meet summer domestic demand.”
On Thursday, Reuters reported a senior Saudi Aramco official says the Kingdom is looking to boost its crude output to a new record in the next few months, in an effort to meet rising demand. Saudi Arabia told OPEC its production in May had risen 25,000 barrels a day, the cartel said this week.
But Riyadh hadn’t just jockeyed for market share, it had also “burned more oil at home,” the IEA said. “May marked the third straight month with production running in excess of 10 million barrels a day and Saudi Oil Minister Ali al-Naimi has said the country’s oil fields will continue to pump at around that level.”
The organization noted May was the third month in a row that OPEC had exceeded its daily 30-million-barrel production target by 1 million barrels. The group’s report came less than a week after OPEC countries met in Vienna and decided to keep production steady at 30 million barrels a day.
“Iraq, which has smashed export records for three months in a row, could see further gains in June after it launched a new system to ship heavy crude,” the group said.
Outside of the OPEC nations, the IEA said, production fell by 200,000 barrels a day last month, to 58 million barrels a day, hampered by wildfires in Canada and maintenance in the North Sea.
On Thursday, U.S. oil fell $1.14 to $60.29 a barrel in early trading on the New York Mercantile Exchange.
But the recent, partial recovery in crude prices, IEA says, could also be attributed to “short-term imbalances in the global refining industry.”
In recent weeks, analysts have scratched their heads at the recent crude rally, and many said they believe it was a premature recovery, largely because the world’s energy stage hadn’t changed much, at least in terms of production metrics around the world. But the IEA says the global refining sector – often overlooked by traders focusing on upstream indicators – could hold part of the answer.
“A temporary imbalance has emerged as project delays and setbacks have prevented emerging non-OECD refiners from keeping up with local demand growth,” the IEA said. It also said some U.S. refineries have experienced glitches in recent weeks that left gasoline product supplies short.
Big refineries in Saudi Arabia, Yanbu, the UAE, India and Brazil have seen outages and delays, leaving a shortfall in refining capacity of 1.5 million barrels a day. All of that has spurred an “unexpected surge in refining activity,” even in Europe.
“It remains that product imbalances have likely been a key factor behind recent oil price strength, but that particular source of support might soon wave as long-delayed refineries eventually reach full production,” the IEA said.
Analysts at Simmons Energy Research in Houston said the demand numbers reflect a “heroic revision” to the first quarter. And while the EIA said a normalization of decreasing demand is likely by the end of the year, Simmons said in a report to investors that, “This strikes us as excessively cautious as we are seeing very little, if any, evidence of demand moderation.”
Eventually demand growth will moderate, Simmons’ analysts said, but given that demand imploded last year, the year-over-year comparison for the second quarter will make 2015 look stronger for countries in the Organization of Economic Cooperation and Development [OECD], which includes the United States and most of Europe.
“Bottom-line, visceral conclusion is simple: both demand and supply are considerably stronger than expected. Which will blink first? We’ll soon find out,” Simmons said.
At Tudor Pickering Holt and Co., analysts said the June report is a mixed bag while global demand was higher, so was the supply from non-OPEC nations. While it’s not surprising that OPEC producers racked up more than 31 million barrels per day, it’s worth taking note that Saudi Arabia ramped up its production to 10.2 MMbpd.
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