Financial Post (Bloomberg) — It’s looking less likely that global oil stockpiles will start being refilled this quarter.
Monthly outlooks from the International Energy Agency, the U.S. Energy Information Administration and the Organization of Petroleum Exporting Countries all show that the supply-demand balance was tighter at the end of 2021 than they forecast a month ago.
The IEA revised its oil demand estimates all the way back to 2007, with the biggest changes made to the figures for 2020 and 2021.
The higher historical consumption numbers for Saudi Arabia and China were compounded by a more robust view of demand in the developed economies of the OECD nations. That boosted global oil use to more than 100 million barrels a day in the final quarter of last year for the first time since before the Covid-19 pandemic struck.
Even without such big demand revisions, the EIA and OPEC already saw a tighter market at the end of 2021, increasing their estimates of the volumes of oil drawn out of global stockpiles in the final three months of last year. While the IEA’s big revision means it leapfrogs the EIA in its assessment of the fourth quarter 2021 stockdraw, it does no more than bring it into line with OPEC’s figure.
The IEA and OPEC now estimate that global oil stockpiles fell by around 2 million barrels a day in the the final quarter of 2021. The EIA puts the draw at a smaller 1.4 million barrels a day.
As they begin to look forward, rather than backwards, the IEA and OPEC also see a tighter market than they did a month ago. In contrast, the EIA sees the world needing fewer OPEC crude barrels in the first quarter 2022 than it was forecasting last month, after revising up domestic production. It now sees companies operating in the U.S. pumping 90,000 barrels a day more in the first quarter than it did in its previous forecast, reducing the world’s need for crude from OPEC. Even so, the U.S. agency is forecasting a bigger global oil stockdraw in the first quarter of the year than it did in January.
The EIA is the only one of the three to forecast OPEC production and it has cut the volume of crude it expects the producer group to pump this quarter by 210,000 barrels a day.
OPEC’s own figures reveal a dismal performance by the group last month. Its 13 members managed to increase supply by just 65,000 barrels a day in January, about a quarter of the amount they pledged to add under the terms of their output deal with a group of non-OPEC allies. Even excluding the lower production by Libya and Venezuela — neither of which has an output limit under the deal — the 10 members with targets still added just half as much as their higher allocations allowed.
Neither the IEA nor OPEC forecasts OPEC crude production, although they do forecast output from the non-OPEC members of the bigger OPEC+ group. The chart below shows how global oil stockpiles would change in the first quarter of 2022 under different assumptions about OPEC production.
Only the producer group sees global stockpiles building under all of the output growth scenarios above. Even if the group continues to add just 65,000 barrels a day to supply each month, OPEC still sees the oil supply-demand balance switching from deficit to surplus. But it hasn’t altered its demand outlook since December, while the EIA has increased its by 410,000 barrels a day and the IEA by more than 1 million barrels.
If the producer group pumps every barrel its target allow in February and March all three agencies agree that supply will exceed demand. But that seems increasingly unlikely. Even if they add the full 254,000 barrels a day by which their collective target increases, the EIA is now forecasting a global stockdraw, while the IEA sees a tiny build of just 60,000 barrels a day.
Reduce incremental OPEC crude supply to 189,000 barrels a day — the average increase they managed between November and January — and the IEA and EIA both see oil markets remaining in deficit this quarter.
Even that is starting to seem like a tall order. Actual OPEC output increases are dwindling as more members struggle to raise production and the group refuses to consider those with spare capacity making up for those with none.
We’ll have to wait longer than previously thought for the oil market to move back into surplus.