“The cycle of repeatedly tightening fundamentals evident since 2009 has been broken for now,” says the International Energy Agency in its latest Oil Market Report. “For now at least, the earlier tide of remorseless market tightening looks to have turned.”
Despite that view, the IEA has hiked its oil price forecast for 2012 by nearly $10 a barrel, as spot prices have remained stubbornly high, despite higher output, increasing stockpiles in the US and a persistently weak demand picture.
The IEA, which advises and lobbies on oil policy for OECD countries, left its global oil demand forecast unchanged at 89.9 million barrels per day (bpd) for 2012, a rise of 0.8 million bpd (0.9%) versus 2011, in today’s report.
The outlook remains largely unchanged from last month, as the demand-constraining influence of $120+ oil prices cancelled out encouraging macroeconomic indicators in February.
In terms of oil demand, the IEA describes a clear divide between OECD and non-OECD countries, with overall OECD demand in February reckoned to have declined by 0.7% to 46.6 million bpd versus an expansion of 0.8% for the world.
Even this clouds what the IEA calls “a clear dichotomy that exists within the OECD,” with western hemisphere OECD demand falling heavily but the OECD Pacific region posting very strong gains, up 7.4% to 9.3 million bpd.
Korea’s oil demand up by 2.6% to 2.4 million bpd, driven by a resurgent industrial sector. Japan’s continuing reliance on crude burning for power in the wake of the Fukushima nuclear disaster led the IEA to increase its estimate of global oil demand in February by 600,000 bpd to 91.1 million bpd. Japan’s oil demand is up by 10.6% year on year February to 5.6 million bpd. Oil demand in the IEA’s ‘other’ product category surged 13% as a result of Japan’s thirst for crude.
The IEA says that growth is forecast to accelerate, albeit very moderately, through 2012 as the global economic backdrop slowly improves.
On prices, the IEA notes a reduction in bullishness on oil markets following news of burgeoning crude stocks in the US, signals from the US Federal Reserve that no further bout of loosened monetary policy is imminent, and talks between the US, UK and France on a release from the Strategic Petroleum Reserve.
The US Energy Information Administration recorded the largest three-week build in US crude inventories since January 20, 2009, according to a Reuters report. A total of 18.9 million barrels were added to crude inventories over the last three weeks.
The IEA says that preliminary indications are that crude stockpiling by Saudi Arabia and China may amount to a combined 700,000 bpd over the first quarter of the year.
“It is clear that stockpiling so far has been driven more by concerns on supplies for the upcoming summer, after sanctions on Iran fully take effect, than by favourable storage economics,” says the report.
The current sanctions against Iran are expected to put a serious squeeze on Iranian crude production, which the IEA continues to forecast falling by between 800,000 bpd and 1 million bpd by mid-summer. The IEA reckons Iran’s exports have already fallen by 300,000 bpd. Several countries have pledged import cuts in coming months, with Japan leading the field in reducing its call on Iranian crude.
Tehran, long used to using exotic payment methods to maintain its exports, is working hard in the face of stringent sanctions to avoid an oil export drop without cutting headline prices. In a move first reported in Petroleum Economist, the Financial Times reports that Tehran is offering 180-day credit terms to a handful of potential customers in Asia, including India. The standard terms of major crude suppliers extend to 30 days.
