Over the past two weeks the key agency forecasts were published. The EIA STEO was released last Tuesday, the OPEC MOMR was published yesterday and the IEA published its OMR today.
Across the three key agencies, 2017 demand growth has increasingly converged with our forecast of 1.4 mb/d. However, estimates for non-OPEC supply growth have been revised higher (both by the EIA and OPEC), and are diverging from our forecast of this being flat in 2017.
A key demand theme over the last two months, other than that of growth convergence (with the EIA lowering its overly optimistic forecasts and OPEC raising its own), has been the upward revision of baseline demand figures. Indeed, the EIA and OPEC Secretariat were far below the IEA and our own estimates on global demand due to underestimation of LPG, mixed aromatics and naphtha demand. Last month, the EIA made large revisions to its demand projections and this month, it was the OPEC Secretariat's turn. Still, the Secretariat continues to misjudge demand, partly to do with omitting petchem demand, with scope for further upward revisions.
It is on non-OPEC supply growth in 2017, where our growth estimates have a wider divergence with that of each of the key agencies. Both the EIA and OPEC revised their 2017 non-OPEC growth estimates higher this month. Not surprisingly, the revisions were largely led by improved prospects for the US and Canada, which we had already baked into our balances. Our expectation for North American (including Mexico) supply growth in 2017 of 0.5 mb/d is within the range of key agency estimates; IEA (0.3 mb/d), EIA (0.6 mb/d), OPEC (0.4 mb/d). However, it is in our view on sharper decline rates in non-OPEC ex-North America where we differ with the key agencies, as we believe accelerated declines will limit non-OPEC ex-US growth.
Overall, even after factoring in the latest revisions, the call on OPEC crude in 2017 for each of the agencies (IEA: 33.1 mb/d, EIA: 32.6 mb/d and OPEC: 32.4 mb/d, with the latter two remarkably low due to demand underestimation) highlights the importance of rolling forward the OPEC deal to limit output, for the rest of the year, to achieve the rebalancing process.
Inventory data also support the deal being extended, as having declined by over 44 mb in December 2016, OECD commercial crude stocks surged by 48 mb, nearly double seasonal norms. While we did not expect stockdraws to become evident in January given the sailing times between producing and consuming nations involved, the key here is that the surge in Q4 16 OPEC production is being felt now, which the IEA also acknowledged. So, with inventories starting out higher, OPEC cuts need to persist for longer to rebalance the market.