IMG.gif

Supply/Demand: The Long Road to Re-Balancing

Copyright © 2021 Energy Intelligence Group

With benchmark crude oil prices now flirting with their past lows of December 2008, it should come as no surprise that the global oil market surplus of 3 million barrels per day for last month is also cresting at the highest monthly level since the 3.8 million b/d surplus of November 2008. The global surplus has actually grown progressively in every quarter of this year, moving from 1.3 million b/d in the first quarter of 2015 to a projected 2.1 million b/d in the fourth quarter, according to the latest OMI projections. The outlook for next year is for another big surplus in the first quarter followed by a gradual easing of supply pressure in subsequent quarters, making for a long road back to a re-balancing of supply and demand (OMI Nov.16'15). It is worth remembering that the general expectation at the start of this year was that the market would move back toward balance in the second half, but it did not work out that way. While oil demand picked up due to lower prices more than was anticipated and non-Opec supply growth slowed a bit less than was expected, Opec output surged by some 1.4 million b/d from the first quarter to the fourth quarter of 2015, accounting for the growing surplus in the second half. In contrast to December of 2008, when Opec agreed to a 2.2 million b/d cut in production in response to the supply surplus, it completely removed any production ceiling at its latest meeting, which means the oil market will have to try to balance itself next year (OMI Jan.16'09). For 2016, OMI is projecting some lessening of supply pressures, but it is so modest that there will be no improvement in the global oil supply-demand balance on a year-on-year basis versus 2015. Substantial surplus inventories are expected to accumulate again, especially in the first half of next year, with the first quarter likely to be just as seriously oversupplied as the fourth quarter of 2015. With some 500 million barrels of excess inventories added in 2015, it currently looks like 2016 could well match that burdensome pace, raising questions about the ability to store such a massive overhang, assuming no pullback from Opec and increased supplies from Iran and some others. Non-Opec supply is expected to show a modest downtrend from current levels as high-cost output is gradually curbed by the pressure of lower prices, just as Opec intends. Meanwhile, global oil demand growth is expected to slow a bit from the unusually rapid pace of 2015 and return to something closer to its longer-term trend line. For the first three quarters of the year, the observed change in stocks was actually somewhat larger than the stockbuild implied by the the supply-demand balance, with an additional 400,000 b/d showing up in inventories over the first nine months. However, that trend in "missing barrels" looks likely to be reversed in the fourth quarter, with early indications showing a much smaller gain in observed stocks than the big average supply surplus of over 2.6 million b/d in October and November. These discrepancies also underscore the preliminary nature of the data as well as time lags in the global petroleum system, which can make monthly trends misleading and incomplete. GLOBAL OIL SUPPLY & DEMAND BALANCE (million b/d) 2015 2014 2014 2015 2016 Demand Sep Oct Nov Nov Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Year OECD-34 46.6 46.4 46.0 45.6 45.9 46.3 45.7 46.5 45.3 46.5 46.5 46.2 46.4 45.4 46.2 Non-OECD 49.6 49.3 49.3 47.6 47.7 48.1 47.6 48.0 49.5 49.3 49.7 49.1 49.2 50.5 50.3 Total Product Demand 96.2 95.7 95.4 93.2 93.6 94.5 93.2 94.4 94.8 95.8 96.1 95.3 95.7 95.9 96.5 Supply Opec Crude‡ 32.2 31.9 32.2 29.6 30.4 29.9 29.8 30.5 31.3 31.9 31.9 31.4 31.8 32.0 32.1 Opec NGL/Cond. 6.8 6.8 6.7 6.7 6.7 6.7 6.6 6.7 6.7 6.7 6.8 6.7 6.8 6.8 6.8 Non-Opec‡ 56.6 56.8 57.0 56.1 54.6 56.2 54.7 56.4 56.3 56.6 57.2 56.6 57.1 56.7 57.1 Processing Gain 2.3 2.3 2.3 2.4 2.3 2.4 2.3 2.2 2.3 2.4 2.3 2.3 2.3 2.3 2.3 Total 97.9 97.9 98.4 94.8 93.9 95.2 93.5 95.7 96.6 97.6 98.2 97.0 98.0 97.9 98.4 Stock Change to Balance +1.7 +2.3 +3.0 +1.6 +0.4 +0.7 +0.2 +1.3 +1.8 +1.8 +2.1 +1.7 +2.4 +2.0 +1.9 Observed Chg. in Stocks* +1.0 -0.4 +1.5 +2.1 +2.3 +0.9 +1.2 +1.3 +2.6 +2.3 Missing Barrels† +0.7 +2.7 +1.5 -0.5 -1.9 -0.2 -1.0 0.0 -0.8 -0.5 2015 2014 2013 2014 2015 Refinery Inputs Sep Oct Nov Nov Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 OECD-34 37.9 36.7 38.0 37.5 37.4 36.1 36.6 36.3 36.2 37.6 37.3 36.9 37.5 37.6 38.6 Non-OECD 41.6 42.2 42.3 41.5 40.7 40.3 40.1 41.6 40.6 40.3 41.1 40.9 41.4 41.8 42.1 Total Refinery Inputs 79.5 78.8 80.3 79.1 78.0 76.4 76.7 77.9 76.8 78.0 78.4 77.8 78.9 79.3 80.7 May not add due to rounding. *Based on OMI's global inventory levels (related). †Arbitrarily defined as implied stock change minus observed stock change.

Rising winter demand can spike diesel prices and support the crude rally. Natural gas switching, cold and more flying all boost demand.
Mon, Oct 18, 2021
Petroleum markets keep rising, with indicators suggesting the rally may continue to surge.
Fri, Oct 22, 2021
Regional variations are slowing down the pace of recovery from the pandemic for the global aviation sector.
Fri, Oct 22, 2021