Oil Market Report: 14 November 2017

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  • Higher prices and relatively mild early winter temperatures contributed to a downward revision to our demand forecast. Growth has been revised down by 0.1 mb/d for both 2017 and 2018 and we now see increases of 1.5 mb/d in 2017 (or 1.6%), to 97.7 mb/d, and 1.3 mb/d in 2018 (or 1.3%) to 98.9 mb/d.
  • Global oil supply rose 100 kb/d in October to 97.5 mb/d on higher flows from non-OPEC countries. Production was 470 kb/d below a year ago, with OPEC supply sharply down from high 4Q16 levels. Non-OPEC supply is expected to rise by 0.7 mb/d in 2017 and 1.4 mb/d next year, led by higher US output.
  • OPEC crude output fell 80 kb/d in October due mainly to lower supply from Algeria, Iraq, and Nigeria. Output of 32.53 mb/d, the lowest since May, was down 830 kb/d from the record rates seen a year ago. The compliance rate with supply cuts in October was 96% and for the year-to-date it was 87%.
  • Hurricane Harvey contributed to OECD industry stocks falling by 40 mb in September to below 3 000 mb for the first time in two years. Global stocks dropped by 63 mb in 3Q17, only the second quarterly draw since 2014. In October, stocks drew in the US and likely in China, but rose elsewhere.
  • Benchmark crude prices increased by $1-2/bbl in October versus September and pushed higher in early November, buoyed by tensions in the Middle East. Oil product markets weakened relative to crude following the return of US refineries to higher throughput levels.
  • For 4Q17, our refining throughput forecast is revised marginally lower to 80.8 mb/d, but refined product inventories are forecast to build as demand seasonally slows down. Relatively robust refining activity level continues into January and February 2018, with runs forecast to grow 1.1 mb/d y-o-y.
  • Our analysis of global oil balances implies oversupplied crude oil markets in 4Q17 and 1Q18. While refined product inventories are also forecast to increase, the main oil stock draws are expected from increased seasonal demand for LPG.

Another new normal?

The events in Saudi Arabia have added extra momentum to the rally that has driven oil prices from lows of $45/bbl (Brent) in late June to around $63/bbl recently. To date, we have not seen any impact on the Saudi energy sector. However, we have seen real interruptions in Iraq where shipments from the north fell by an estimated 170 kb/d in October, as well as lower production in Algeria, Nigeria and Venezuela. In recent weeks, we also saw lower-than-expected production in the US, Mexico and the North Sea. These supply disruptions, geopolitical concerns, a growing expectation that the OPEC/non-OPEC output accord will be extended through 2018 at the end of the month, and with demand growth still robust, largely explain firmer prices.

Does it mean the market has found a "new normal" where the accepted floor might have moved from $50/bbl to $60/bbl? This might be a tempting view, assuming supply disturbances will continue and tensions in the Middle East will not ease. However, if these problems do prove to be temporary, a fresh look at the fundamentals confirms the view we expressed last month that the market balance in 2018 does not look as tight as some would like, and there is not in fact a "new normal".

This month's Report backs this up. We have reduced our demand numbers by 50 kb/d for 2017 and by 190 kb/d for 2018. The 2017 revision is not very large, although it includes a more significant downward revision in 4Q17 of 311 kb/d. This is partly because of northern hemisphere heating degree day numbers for the early winter season, revised demand data for some Middle East countries e.g. Iraq and Egypt, and modest changes elsewhere. We have also taken general account of prices rising, in broad terms, by about 20% since early September. For 2018, our demand outlook has been adjusted to reflect a lower estimate for heating degree days in the early months plus some impact from higher prices. (See: Oil demand response to prices).

For the overall market balance, our changes to demand growth, which remains robust, and supply largely cancel each other out. Using a scenario whereby current levels of OPEC production are maintained, the oil market faces a difficult challenge in 1Q18 with supply expected to exceed demand by 0.6 mb/d followed by another, smaller, surplus of 0.2 mb/d in 2Q18. The reality is that even after some modest reductions to growth, non-OPEC production will follow this year's 0.7 mb/d growth with 1.4 mb/d of additional production in 2018 and next year's demand growth will struggle to match this. This is why, absent any geopolitical premium, we may not have seen a "new normal" for oil prices.

Alongside this Report, the IEA is also releasing its World Energy Outlook 2017, whose horizon extends well beyond the five-year horizon contained in our Oil Report 2017, and which examines multiple potential long-term pathways for oil. Each of these scenarios responds to different assumptions about future policies and technologies. One is the "Low Oil Price Case" that examines what it might take to keep prices in a $50/bbl to $70/bbl range all the way through to 2040. The main conditions are: a high resource assumption for US tight oil; widespread up-take of digital and other technologies that help keep a lid on upstream costs; exceptionally rapid growth in the electric car fleet; and a favourable assumption about the ability of the main resource owners to weather the storm of lower revenues.

One of the findings of this WEO-2017 "Low Oil Price Case" is that even a rapid growth in the electric car fleet is unlikely to have a substantial impact on oil consumption for passenger transport until the mid-2020s. Indeed, in the absence of a major switch in policy direction, there is likely to be continued robust growth in other sectors, including trucks, aviation, maritime transport and petrochemicals. This is a continuation of the strong demand growth we are seeing in our short term oil market analysis.



  • This month's demand outlook reflects the impact of rising prices and the start of the northern hemisphere winter season. Higher prices and relatively mild winter temperatures contributed to a downward revision to our demand forecast. Growth has been revised down by 0.1 mb/d for both 2017 and 2018 and we now forecast demand growth of approximately 1.5 mb/d in 2017 (or 1.6%) and 1.3 mb/d in 2018 (or 1.3%).
  • New and revised data confirmed a slowdown in world demand growth to +1.3 mb/d in 3Q17. The slowdown reflects relatively weak recent data and the impact of hurricanes Harvey and Irma on US oil demand. Growth is expected to accelerate to +1.4 mb/d in 4Q17, even though mild temperatures and rising prices will restrain demand.
  • US data for August was weaker than expected, showing a contraction in demand of 110 kb/d year-on-year (y-o-y) after an increase of 250 kb/d in July. Gasoline demand growth bounced back 85 kb/d above last year but LPG/ethane demand declined by 190 kb/d after posting an increase of 100 kb/d in July.
  • German oil consumption rose by 50 kb/d y-o-y in September, despite lower diesel and gasoline deliveries. Total gasoil demand growth stood 65 kb/d above last year, however, supported by high heating oil deliveries while diesel deliveries fell. French oil consumption rose by 70 kb/d y-o-y in September while Italian demand contracted by 80 kb/d on low diesel and gasoline deliveries.
  • Chinese estimated demand surged by 990 kb/d y-o-y in September, supported by strong increases in all products. China apparent demand has been boosted by strong growth in refinery runs, but we assume that part of the increase in production moved into storage.
  • Indian demand also posted strong growth, increasing by 385 kb/d y-o-y in September. Demand benefited from an improving economic environment, but part of the growth can be attributed to the weak 2016 numbers. Gasoil and gasoline were the fastest growing products. 



  • Global oil supply rose 100 kb/d in October to 97.5 mb/d due to higher flows from non-OPEC. Production was 470 kb/d below a year ago, with OPEC supply sharply down from lofty 4Q16 rates.
  • OPEC crude output fell 80 kb/d in October due mostly to lower supply from Iraq, Algeria and Nigeria. Output of 32.53 mb/d, the lowest since May, was down 830 kb/d on a year ago when OPEC was pumping at record rates. Lower flows from members subject to supply cuts raised compliance to 96% in October, the highest since the deal began in January, and lifted the year-to-date rate to 87%.
  • OPEC and non-OPEC participants meet on 30 November to discuss whether to extend supply cuts beyond 1Q18. Saudi Arabia, which - with Russia - drove through the deal, is prepared to prolong it. As for market balances, a 4Q17 requirement of 32.6 mb/d for OPEC crude implies a slight draw in inventories. In 1Q18, however, the call drops to 32 mb/d, more than 500 kb/d below current output.

  • Non-OPEC supplies rose 205 kb/d in October, as North Sea and Mexican production recovered from maintenance and weather related disruptions a month earlier. Hurricane shut-ins once again capped US output while Russian flows inched marginally higher. At 58.05 mb/d, total non-OPEC production stood 225 kb/d above a year ago, its lowest level of growth since the start of the year.
  • Non-OPEC oil production is forecast to expand by 0.7 mb/d on average in 2017 and 1.4 mb/d next year. Gains stem primarily from the US, which despite a recent reduction in the number of active drilling rigs, is expected to see continued expansion. Higher prices should support an acceleration in completion rates going into 2018, resulting in average US crude oil production growth of 370 kb/d this year and 790 kb/d in 2018.
  • Adherence to agreed output cuts from the ten non-OPEC countries party to the supply cut deal reached 107% in October, down from an upwardly revised 142% in September. Russian compliance slipped to 98% from 104% a month earlier. Mexican output rose from an exceptionally and unexpected low September level. Production problems at the Kashagan field likely saw Kazakhstan output move lower. Year-to-date, the group's compliance rate is estimated to have averaged 81%.

All world oil supply data for October discussed in this report are IEA estimates. Estimates for OPEC countries, Alaska, Azerbaijan, Mexico, Russia and Peru are supported by preliminary October supply data.



  • OECD commercial stocks decreased 40.3 mb (1.3 mb/d) in September to below the symbolic 3 000 mb mark for the first time in almost two years. Hurricane Harvey, which caused disruption to US refineries, was a major factor. European stocks declined more steeply than in the Americas.
  • Global oil stocks dropped by an estimated 63.1 mb (690 kb/d) in 3Q17, only the second quarterly draw since oil prices crashed in 2014. Implied net stock builds in China remained impressive, but slowed from 2Q17 and were not enough to offset draws in other locations (see Global oil stocks drew 690 kb/d in 3Q17 in this section and Global crude oil and product balances in the refining section).
  • In October, stocks continued to draw sharply in the US and likely fell in China for the first time in a year. However, stocks increased in most other reported locations. Estimated volumes of oil in transit went up sharply and these barrels will likely show up in onshore stocks during 4Q17.



  • Benchmark crude prices rose by $1-2/bbl in October versus September and pushed even higher in early November, buoyed by rising political tensions in the Middle East.
  • Money managers boosted net long positions in crude futures to a near record. Short positions held by swap dealers also rose, reflecting increased hedging activity from producers.
  • Oil product markets weakened relative to crude on improved supplies following the return of US refineries to production. Naphtha rose with higher petrochemical demand. Crude tanker freight rates increased from September's very low levels due to higher import and export movements.



  • Our estimate for 3Q17 global refinery intake is revised up by 0.2 mb/d to 81.1 mb/d, on strong growth in China and Europe. Runs increased by 0.9 mb/d quarter on quarter (q-o-q).
  • The forecast for 4Q17 throughput has been revised down by 0.1 mb/d, to 80.8 mb/d, growing by 0.9 mb/d year on year (y-o-y). Annual growth is expected to accelerate in January and February 2018, with runs up about 1 mb/d y-o-y.
  • Global refined product and crude oil balances show dramatic changes behind the nominally similar headline oil balances for 3Q17 and 4Q17. After continued refined product and crude oil stock draws in 3Q17, both refined products and crude markets are forecast to be in oversupply, while the draws come from seasonal LPG use for heating.