IEA: Possible oil price reprieve on the horizon as oil supplies rise

The world oil market remains tight by all measures, but a reprieve from the price rally could be on the horizon, the International Energy Agency (IEA) noted in its November Oil Market Report. Contrary to hopes expressed in Glasgow at COP26, this is not because demand is declining, but rather due to rising oil supplies, according to IEA.

Following another hefty inventory decline in September, benchmark crude oil prices surged by $9/bbl to fresh highs above $86/bbl for Brent and $84/bbl for WTI. However, preliminary data and satellite observations of stock changes in October suggest the tide might be turning, IEA noted.

Global oil production is already on the rise. In October, oil supply jumped by 1.4 million b/d to 97.7 million b/d, of which the recovery from the US hurricane accounted for half. It is expected that there will be a further 1.5 million b/d increase in November and December even as OPEC+ disregarded pleas from major consumers to ramp up beyond a monthly allocated 400,000 b/d to cool prices. Over this period, the US is now poised to provide the largest increase in supply of any individual country, IEA said.

IEA has raised its forecast for the US production by 300,000 b/d for fourth-quarter 2021 and by 200,000 b/d on average in 2022 as current prices provide a strong incentive to boost activity even as operators stick to capital discipline pledges.

According to IEA’s forecast, the US is set to account for 60% of 2022 non-OPEC+ supply gains, now forecast at 1.9 million b/d. Even so, the US will not return to pre-COVID rates until end 2022. That increase will go some way to meet rising demand, still recovering from the 2020 COVID slump.

On the demand side, global oil demand is strengthening due to robust gasoline consumption and increasing international travel as more countries re-open their borders. However, as the gains will be offset by new COVID waves in Europe, weaker industrial activity, and higher oil prices, IEA’s forecast for oil demand growth remains largely unchanged since last month’s report at 5.5 million b/d for 2021 and 3.4 million b/d in 2022.

Global refining throughput is set to increase by almost 3 million b/d from October through December as seasonal maintenance wraps up. Refinery margins rose in October, driven by exceptionally tight product markets, despite the sharp gains in crude oil prices. Further ahead, refinery throughputs are expected to stabilize and generally hold flat in first-half 2022 before the seasonal increase in third-quarter 2022.

OECD total industry stocks plunged by 51 million bbl in September, with crude oil and middle distillate holdings accounting for most of the declines. In terms of regions, Europe led the drawdown. At 2,762 million bbl, total OECD industry stocks stood 250 million bbl below the 5-year average and at their lowest level since the start of 2015. Preliminary data for October point to a marginal stock build.