World oil demand increased by just 520,000 b/d year-over-year during January-May—the slowest pace for this period since 2008, according to the International Energy Agency’s latest Oil Market Report.
In this year’s first half, many large economies reported weak gross domestic production growth linked to lower trade and manufacturing output. US officials announced a delay in imposing 10% tariffs on $300 billion in Chinese products until Dec. 15, although previously, US President Donald Trump had set Sept. 1 as the effective date.The International Monetary Fund reduced its growth estimates for 2019 and 2020 by 0.1 of a percent to 3.2% and 3.5%, respectively.
Due to sluggish first-half oil demand growth and a weaker economic outlook, IEA lowered its global oil demand growth forecasts for 2019 and 2020 by 100,000 b/d and 50,000 b/d, to 1.1 million b/d and 1.3 million b/d, respectively.
Demand of the Organization for Economic Cooperation and Development has fallen for three quarters in a row for the first time since 2014. Fuel oil and naphtha have shown substantial drops because of lower deliveries to the power sector in South Korea and Japan and reduced demand for petrochemicals. Several months before the implementation in 2020 of the new International Maritime Organization rules for bunker fuel quality, OECD demand for fuel oil appears to have fallen to its weakest level in more than a decade.
Preliminary data for the US for June and July shows lower year-over-year demand for motor fuels, particularly gasoline, at the start of the peak driving season.
By contrast, IEA raised its apparent consumption figures in China for this year’s first half due to higher refinery output and steeper oil product stock draws.
Supply
At the start of the third quarter, global oil supply held largely steady above 100 million b/d, but down 580,000 b/d year-over-year. This was the first annual decline since November 2017 due to oil output from the Organization of Petroleum Exporting Countries trailing 2 million b/d below July 2018. Non-OPEC supply was up 1.4 million b/d year-over-year.
In July, world oil supply eased 60,000 b/d month-on-month to 100.2 million b/d after platforms in the US Gulf were shut due to Hurricane Barry and Saudi Arabia turned down the taps.
Saudi Arabia delivered the biggest production decrease in July, with output dropping 120,000 b/d to 9.65 million b/d. Lower Saudi production and further losses in Venezuela and Iran due to sanctions pushed OPEC’s crude supply down 190,000 b/d month-on-month to 29.71 million b/d.
Iraq was the only country among OPEC to post a substantial increase during July, with output returning to record rates as exports accelerated. Crude production in Iran dropped 50,000 b/d in July to 2.23 million b/d—the lowest since the late 1980s.
July marked the fifth consecutive month of OPEC+ countries outperforming on their deal to remove 1.2 million b/d from world oil markets. Compliance rose to 134% during July from 118% the previous month.
As for non-OPEC, oil output climbed 160,000 b/d to 64.9 million b/d as the North Sea returned from maintenance and Brazil staged a comeback, offsetting lower production in the US.
For the year as a whole, non-OPEC supply growth has been revised marginally lower, to 1.9 million b/d, on a slightly weaker forecast for Brazil. However, growth accelerates to 2.2 million b/d in 2020 as Brazil picks up speed and new projects start up in Norway and Guyana.
The US nevertheless remains the largest source of growth, contributing a total of 1.7 million b/d in 2019 and 1.3 million b/d in 2020.
Short-term balance
IEA said the short-term market balance has been tightened slightly by the reduction in supply from OPEC countries.
“In a clear sign of its determination to support market rebalancing, Saudi Arabia’s production was 700,000 b/d lower than the level allowed by the output agreement. If the July level of OPEC crude oil production at 29.7 million b/d is maintained through 2019, the implied stock draw in the second half of 2019 is 700,000 b/d, helped also by a slower rate of non-OPEC production growth.
However, this is a temporary phenomenon because our outlook for very strong non-OPEC production growth next year is unaltered at 2.2 million b/d. Under our current assumptions, in 2020, the oil market will be well supplied,” IEA said.
Global refining throughput fell 90,000 b/d year-over-year in this year’s first half despite the large 720,000 b/d gain in China, where IEA has revised up historical throughput estimates.
However, global refining throughput is expected to pick up in this year’s second half, increasing by 700,000 b/d. This year China and the Middle East are alone in seeing growth in refining activity.
OECD commercial stocks increased by 31.8 million bbl in June to 2,961 million bbl, 66.9 million bbl above the 5-year average. Preliminary data for July showed inventories falling in the US and rising in Japan.
Floating storage of crude oil increased by 31.9 million bbl in July to 55.9 million bbl—the highest level since August 2017. This is largely due to a big increase in oil held on tankers by Iran.