Demand for oil in 2015 will grow far slower than previously forecast as global economies remain weak, the International Energy Agency said on Tuesday, and prices may extend their sharp fall so long as OPEC shows no sign of countering a supply surge. The IEA said it cut its 2015 estimate for oil demand growth by 300,000 barrels per day (bpd) from its previous forecast and now expects demand growth of 1.1 million bpd to 93.5 million. It cut its 2014 estimate by 200,000 bpd to 0.7 million bpd.
It said demand would be supported by prices near four year lows – oil is around $88 a barrel from above $115 in June, a 25 percent drop resulting from a boom in U.S. shale oil production, slow global growth and a strong dollar. But it added that those low prices would remain under pressure because of supply levels: Global oil supply rose by almost 910,000 bpd in September to 93.8 million bpd, almost 2.8 million bpd higher than the previous year.
In a rare IEA comment on OPEC’s strategy, its chief analyst Antoine Halff said the producer group may no longer be willing or able to adjust production as the market has been transformed by the U.S. shale oil revolution. Some OPEC members whose budgets depend on oil might prefer to keep selling at lower prices than lose their part of the market.
“We should not expect OPEC to necessarily play its traditional role of swing producer,” Halff told Reuters on Tuesday, adding that other players with higher production costs might cut instead, such as those extracting from deepwater or oil sands.
The Organization of the Petroleum Exporting Countries meets on Nov. 27 to discuss output policies and whether to act to stem the price slide. Given that oil is currently in what analysts including JBC Energy call the biggest bear market since 2009, it’s likely to be the most interesting meeting in a while – particularly if, as several OPEC watchers suggest, its biggest exporter Saudi Arabia is less willing to cut production than in the past.
The IEA said oil prices might not yet have dropped enough to force OPEC cuts because an “analysis of light, tight oil supply suggests that most of it remains profitable at $80 a barrel Brent.”
“Recent price drops appear both supply and demand driven,” the West’s energy watchdog said in its monthly report. “Further oil price drops would likely be needed for supply to take a hit – or for demand growth to get a lift.”
STRONG SUPPLY, WEAK DEMAND
The IEA said that because of weaker global demand outlook it had also cut its estimate for demand for OPEC crude by 200,000 bpd for 2015 to 29.3 million bpd – more than 1 million bpd below current production levels. OPEC crude oil output surged to a 13-month high in September, led by recovery in Libya and higher Iraqi flows. Production rose 415,000 bpd from August to 30.66 million bpd.
Crude supplies from top OPEC producer Saudi Arabia edged up by 50,000 bpd in September to 9.73 million bpd. The IEA said flows might ease in October due to slower seasonal demand for domestic crude burn. It also said that it expected non-OPEC supply growth to average an impressive 1.3 million bpd in 2015.
“Total U.S. liquids production continues to exceed Russian and Saudi Arabian oil supplies. We estimate that total U.S. total liquids output will be above 12.0 million bpd next month and will remain above that threshold through December 2015,” it said.