The relentless deterioration of the economy and higher prices sparked by an OPEC+ plan to cut supply are slowing world oil demand, the International Energy Agency (IEA) said in its October oil market report. IEA now expects global oil demand to contract by 340,000 b/d y-o-y in fourth-quarter 2022.
Meantime, IEA reduced its oil demand growth forecasts to 1.9 million b/d in 2022 and to 1.7 million b/d next year, down by 60,000 b/d and 470,000 b/d, respectively, from last month’s Report. World oil demand is now forecast to average 101.3 million b/d in 2023.
World oil supply rose by 300,000 b/d in September to 101.2 million b/d, with OPEC+ providing over 85% of the gains. After a massive 2.1 million b/d boost from second-quarter 2022 to third-quarter 2022, growth is forecast to decelerate markedly, to 170,000 b/d from third-quarter 2022 to fourth-quarter 2022, following the OPEC+ decision to cut official production targets by 2 million b/d from November–a 1 million b/d cut to actual output given the bloc’s underperformance vis-à-vis quotas.
Global refining activity is also responding to the slowdown in demand and lower refinery margins, with third-quarter 2022 runs coming in lower than expected. IEA’s forecasts for fourth-quarter 2022 and 2023 have been revised down by 340,000 b/d and 720,000 b/d, respectively, following demand downgrades and OPEC+ production cuts. Runs are now expected to increase by 2.2 million b/d in 2022 and 1.2 million b/d next year.
According to IEA data, Russian oil exports fell by 230,000 b/d to 7.5 million b/d in September, down 560,000 b/d from pre-war levels. Shipments to the EU dropped by 390,000 b/d m-o-m. With less than 2 months to go before a ban on Russian crude oil imports comes into effect, EU countries have yet to diversify more than half of their pre-war import levels away from Russia.
Global observed inventories rebounded by 36.5 million bbl in August, as lower onshore inventories (-27.8 million bbl) were offset by a surge in oil on water (+64.3 million bbl). OECD commercial oil inventories built for a second consecutive month, by 15 million bbl in August, but remained a steep 243 million bbl below the 5-year average despite the release of 32.8 million bbl of government stocks.
Brent futures fell by 7% m-o-m in September and touched their lowest level since the start of the year, at $84/bbl on Sept. 26. The decision by OPEC+ in early October to curtail supply pushed Brent up by around $14/bbl, to $97.92/bbl, before easing somewhat. Brent backwardation steepened for the first time in 4 months in September while open interest fell to 7-year lows.
