Across the key agency forecasts, demand estimates were left broadly unchanged in the latest round of monthly reports, with 2014 growth starting to converge between 1.1-1.3 mb/d (OPEC: 1.14; EIA: 1.24; IEA: 1.33 mb/d). Non-OPEC supplies were raised marginally by the EIA and OPEC and held steady by the IEA. There too, growth is converging to around 1.5 mb/d, following significant downward revisions made by the EIA and IEA over the last two months. Our long held estimates are for demand growth to average 1.3 mb/d and non-OPEC supply growth to average 1.5 mb/d, with consensus estimates now reflecting similar figures.
Not surprisingly, the call on OPEC crude is also starting to creep up, with the IEA the first among the key agencies to push its call past 30 mb/d. The first IEA report forecasting 2014 ‘call on OPEC crude' in July 2013 had pegged it at 29.41 mb/d, lower y/y by 0.24 mb/d. By October, the call had been dropped to 29.05 mb/d, on expectations for non-OPEC supply growth to surge by 1.8 mb/d. Today, that call finally stands at 30 mb/d for 2014, an upward revision of nearly 1 mb/d in eight months. While no forecast of demand or supply is ever perfect, a miss of 1 mb/d is staggering.
We have consistently had an estimate for 30.1 mb/d for the 2014 call since we first launched balances. As ever, demand has surprised to the upside relative to consensus estimates and supplies to the downside. Exactly the same trend has been seen since 2010. While the call on OPEC crude remarkably steady above 30 mb/d (2010: 30.3 mb/d; 2011: 30.3 mb/d; 2012: 30.6 mb/d; 2013: 30.4 mb/d), key agencies have consistently underestimated the call initially, only to revise it higher throughout the year.
In the more immediate term, China remains the Achilles heel of oil demand growth with the rest of non-OECD countries (including Russia so far) showing robust growth (or solid recovery in the case of some like India). OECD demand continues to surprise to the upside as well. Non-OPEC supply growth remains centred in North America which, we believe, will surprise to the upside, while the rest of the world surprises to the downside. With peak refinery maintenance in April, OECD inventories built by more than seasonal-averages to 52.1 mb, narrowing the deficit to 79 mb. But given the extent of stock draws in Q4 13 and stocks holding steady in Q1 14, Q2 14 builds have not been enough to replenish them. This has been reflected in price action this year, with the usual Q2 sell off only taking Brent down to just below $104 per barrel.