On Friday, July 12, the IEA of the International Energy Agency released its monthly oil report, which attracted much attention from the market. The organization expects that non-OPEC production led by the United States will grow faster than global demand for crude oil, limiting upward space for today’s international oil prices.
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According to the IEA report, in the first half of 2019, the global crude oil market has fallen into a pattern of oversupply, with crude oil supply exceeding demand by 900,000 barrels per day. The excess supply will accumulate into already large stockpiles of crude oil, which began to take shape in the second half of last year, when global crude oil production surged, but demand growth began to swing.
Neil Atkinson, head of IEA’s crude oil industry and market department, pointed out that the prospects for the second half of this year and 2020 are “considerable oversupply of crude oil”, mainly due to the substantial increase in production from the United States and other countries:
“OECD commercial crude oil stocks increased by 22.8 million barrels per day in May to a total of 2.906 billion barrels, 6.7 million barrels higher than the five-year average. If OPEC output remains unchanged at the current level of 30 million barrels per day, it will increase global crude oil inventories by 136 million barrels by the end of the first quarter of 2020. OPEC + last week extended the existing agreement to cut production by 1.2 million barrels per day to March 2020, without changing the basic outlook for oversupply. The oil market is still a long way from rebalancing. At present, the oil market is not tightening. Any rebalancing action must continue.
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The IEA said that the global crude oil supply exceeded 500,000 barrels per day in the second quarter of this year, compared with the expected supply gap of 500,000 barrels per day. This is mainly due to the “extraordinarily weak” demand for crude oil in the first half of the year, with global oil demand growing at 310,000 barrels per day in the first quarter and 800,000 barrels per day in the second quarter.
The report predicts that global oil demand growth will rebound to 1.8 million barrels per day in the second half of the year, with an average annual growth rate of 1.2 million barrels per day as a result of improved economic activity and accelerated operation of petrochemical plants. Global oil demand growth will rebound further to 1.4 million barrels per day in 2020, which is on the same level as last month’s forecast, but smaller than this year’s global crude oil supply. Average growth of 2 million barrels per day and supply growth of 2.1 million barrels per day next year.
Given the slowing rebalancing process in the global oil market, the organization expects that the pattern of over-supply in the oil market will continue until 2020, with supply growth of 2.1 million barrels per day largely coming from U.S. -led capacity expansion of non-OPEC organizations. The decline in demand for OPEC crude oil in the first three months of next year is expected to force OPEC production to drop from 30 million barrels a day to 28 million barrels a day, the lowest since the third quarter of 2003.
Observations show that the conclusions of the IEA report are consistent with the monthly report issued by OPEC on Thursday. OPEC had predicted that global oil consumption would continue to grow at the rate of 1.1% this year, about 1.1 million barrels per day in 2020. Under the pressure of non-OPEC supply represented by American shale oil, global demand for OPEC crude oil was expected to decrease by 1.34 million barrels per day to 29.27 million barrels per day, the third consecutive year of sharp decline.
Analysts say the demand figure is much lower than the output of OPEC’s 14 member countries last month of 9.83 million barrels per day, which means that simply extending existing production reduction agreements or failing to prevent new oversupply in the global crude oil market. Another embarrassing situation facing OPEC is that member countries rely on production cuts to support oil price efforts, instead providing opportunities for competitors such as U.S. shale oil to nibble up global market share.
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The IEA stressed that the monthly oil report reflects the recent focus of market attention on the topic of “demand growth”. Although the organization has not lowered its global GDP growth expectations for the time being, there are signs that trade and manufacturing activities are deteriorating. Global manufacturing output fell in the second quarter for the first time since late 2012; new orders fell faster. At the same time, European oil demand is weak, aviation industry is facing development difficulties, and the demand for gasoline and diesel oil in the United States also fell in the first half of the year on a year-on-year basis.
According to Reuters analysis, the IEA report shows that U.S. oil output growth will exceed the sluggish growth of global demand, leading to a global backlog of large crude oil inventories in the next nine months, which seems to be anticipating that OPEC and its allies will have to step up production cuts. According to U.S. News and World Report, strong U.S. production and exports and poor global demand will keep oil prices weak by 2020. Brent’s oil price has fallen by $10 to $15 from the same period last year. The IEA expects oil prices to fall by 8% in 2020 compared with the level in 2018.
But Steven Kopits, managing director of Princeton Energy Advisors, does not fully agree with the IEA. In his view, U.S. crude oil production growth seems to be slowing down compared with last year, and inventories of crude oil and finished oil are also decreasing. This week’s data show that American oil rigs, according to Baker Hughes, have fallen for two weeks, while EIA crude oil and gasoline stocks have fallen for four weeks.
According to financial media CNBC, WTI and Brent oil prices will increase by more than 4% this week, reversing last week’s decline. One hour before Friday’s close, WTI August futures rose 0.3% to $60.39 a barrel, hitting a daily high of $60.74, the highest since May 22, while Brent September futures rose 0.5% to $66.81 a barrel, hitting a daily high of $67.28 since May 30.
Later this week, oil prices in the United States accelerated, driven by the Fed’s expectations of interest rate cuts, as well as the impact of bad weather on crude oil production.
U.S. stocks fell more than 0.2% in midday trading on Friday, and the dollar index fell to 96.846 on the refresh day, 27 points lower than the day’s high, approaching the 200-day average of 96.774. According to Xinhua News Agency, Tropical Storm will hit the United States, Trump declared a state of emergency in Louisiana. Crude oil production in the Gulf of Mexico has fallen by more than 1 million barrels per day or by 53%.