The IEA today labelled the Opec+ group's recent decision to cut its supply quotas as a "disruptive market force", and said this, along with a "relentless deterioration" in the economy, are behind sharp downgrades to its forecasts for global oil demand growth.
In its monthly Oil Market Report, published today, the Paris-based agency said oil demand will contract in the current quarter, by 340,000 b/d year on year, and it lowered its expectations for demand growth this year and sharply for 2023. It had previously projected demand growth coming to a halt, and the newly-anticipated contraction in the fourth quarter means its forecast for this year is now 1.9mn b/d, from a previous 2mn b/d. It took a cleaver to its estimate for 2023, when it now sees demand growth at 1.7mn b/d compared with a previous 2.1mn b/d.
Opec itself this week made substantial cuts to its global oil demand growth forecasts for 2022 and 2023, but they remain some way above the new IEA projections. Saudi Arabia, Opec's de facto leader, has this week engaged in repeated defences of the Opec+ decision to cut production quotas by 2mn b/d, mostly against criticism from the US that the change was political. The IEA today offered a more market-fundamentals evaluation of the move, saying it "will sharply reduce a much needed build in oil stocks through the rest of this year and into the first half of 2023."
The agency's preliminary data for September show a second consecutive monthly rise in OECD industry inventories, of 3.8mn bl. It said that although this remains some way below the five-year average, they would be significantly lower if it had not been for stock releases from IEA member countries between March and August. The US is considering more crude sales from its Strategic Petroleum Reserve (SPR), having already approved a 165mn bl drawdown by the end of November through emergency sales approved earlier this year.
The IEA today cast doubt on the ability of the market to respond to higher prices with increased investment in supply, noting especially that US shale producers are facing supply chain difficulties and cost inflation — a point also made this week by the US EIA.
The IEA said further production losses could come from Russia in December, when an EU embargo on crude imports and a ban on maritime services go into full effect, and noted Moscow's warnings that it will not sell crude to countries that sign up to the G7's plan for a price cap on Russian oil.
The agency puts oil supply growth this year at 4.6mn b/d, a reduction of 220,000 b/d from its previous estimate, and at just 760,000 b/d in 2023, down by 1.2mn b/d from the last OMR. The latter will be led by 1.8mn b/d growth in non-Opec+ supply, of which the IEA said the US will contribute 60pc, while Opec+ output is forecast to fall by more than 1mn b/d.
