IEA Offers No Hope For An Oil-Price Recovery

Posted in The Petroleum Truth Report on November 13, 2015

The International Energy Agency (IEA) November report offers no hope for an oil-price recovery any time soon. Over-supply and weak demand for oil will dominate through 2016.

The world has a 1.6 million barrel per day oil production surplus (supply minus demand) as the oil glut enters its 8th consecutive quarter (Figure 1).

Chart_Prod Surp-Def 11-15_NOV 2015
Figure 1. World liquids production surplus or deficit since 2011. Source: IEA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

The supply surplus is 710,000 barrels per day lower than it was in the 2nd quarter of 2015 but is higher than in any other quarter since the oil-price collapse began. In fact, it is higher than any other quarterly surplus in the past decade (Figure 2).

Chart_Surplus-Deficit 06-15_NOV 2015

Figure 2. World liquids production surplus or deficit since 2006. Source: IEA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

The oil demand forecast for 2015 is the only hopeful part of the IEA report with demand growth estimated at 1.8 million barrels per day compared to 2014 (Figure 3).

Chart_Annual Demand Growth_NOV 2015
Figure 3. IEA annual demand growth and 2015-2016 estimates.  Source: IEA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

There are two important qualifications, however, to this good news. First, the comparison is positive only compared to 2014, the worst year for demand growth since the Financial Collapse in 2008. Second, demand growth of 1.8 million barrels per day includes IEA’s estimate for the 4th quarter of 2015. Growth through the 3rd quarter is only 1.5 million barrels per day.

The really bad news, however, is that demand growth for 2016 will fall to 1.2 million barrels per day. This, of course, is also a forecast and is in comparison to the estimated 1.8 million barrels per day for 2015. If 2015 demand growth remains at 1.5 million barrels per day, the 2016 forecast will be flat with 2015.

IEA’s November report is consistent with the EIA report released yesterday. EIA’s report provides a more detailed monthly account of production and consumption than IEA’s quarterly data, and EIA shows that October consumption (a proxy for demand) decreased 510,000 barrels per day compared with September 2015. It further shows that production was flat and that the surplus is not declining as the IEA quarterly data suggests.

The IEA and EIA reports taken together lead me to two unavoidable and disturbing conclusions: over-production continues and a weak global economy is an obstacle to oil-demand growth.


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16 comments on this entry


  1. Today, 11/13, Bloomberg has an IEA article showing a bar chart, that they credit to the IEA, which supposedly shows the total amount of oil in storage separately for both governments and industry. The period is from the end of the 1st qtr of 2014 thru the 3rd qtr of 2015. Government storage is flat and industrial storage is up 400 million barrels. But, that is over about 540 days. So the daily surplus into storage is an average of 750,000 bbl/day during that period. That seems to be less than what is being shown as the daily production surplus. If so, I wonder where the rest is going.


  2. Clueless,

    Production is not the same as supply, nor is consumption the same as demand.

    Supply includes both production and inventory, and demand includes consumption and also the amount of oil “desired” by the market. The IEA defines demand as consumption plus secondary and tertiary stock increases.

    Thanks for your comment,

    Art


  3. I’ve scrutinized the recent IEA report proclaiming that prices are very unlikely to exceed $80 thru at least 2020. From this, I feel that one and only one conclusion is inescapable: The IEA must be staffed by submoronic imbeciles!

    This is a man-made situation, orchestrated primarily by KSA. If Russia and KSA were to ally with one another (which I’m convinced is one of KSA’s goals), and both agreed to cut production by only 5%, the glut would become a global shortage overnight, and prices could easily be north of $100 within a few weeks. I don’t think KSA wants that to happen, nor do I expect it to happen. My point is that anyone who takes this IEA projection seriously is a fool.

    A true statement is that IEA’s projection is likely to hold true IF (and only IF) KSA stays on its present strategy for all of that time. I think that PROFOUNDLY unlikely.

    Erik


  4. Erik,

    I think that the IEA projection is based on their gloomy view of the global economy and the ongoing deflation of commodities. This is the view that Gail Tverberg expresses in her blog posts and recent interview with Jim Kunstler.

    All the best,

    Art


  5. Art, Really nice charts! It would be nice to see Figure 2 with the oil price like Figure 1. The day of reckoning for oil is nigh. If WTI $38 support does not hold then its a long way down. Not sure what the consequences are. I now suspect $20 is worse for OPEC; Venezuela, Algeria, Nigeria, Iraq and Saudi fall apart.

    $20 will also be the moment when a lot of money can be made by unscrupulous capitalist pigs. $20 (Brent) is not plucked out of thin air but based on this simple look at deflated historical oil prices.

    http://euanmearns.com/the-oil-price-how-low-is-low/


  6. Euan,

    The chart is updated to include Brent price. Only for you!

    All the best,

    Art


  7. Art, Thank you. Its a great chart. It really brings into sharp focus the level of over-supply. Curious that the oil price did not blink at the 2012 surplus. On checking OPEC spare I see that OPEC held back about 2 Mbpd following that time of surplus – either by restraint or by bombing and sanctions.

    http://www.euanmearns.com/wp-content/uploads/2015/10/opecsparesep15.png


  8. Euan,

    That is quite interesting about an OPEC production cut in 2012–I didn’t know that. EIA has a chronology of petroleum events and a slide that extends beyond 2000 but not to 2012.

    Thanks,

    Art


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