The past two weeks have seen the release of the three key agency forecasts. The EIA published STEO last Tuesday, followed yesterday by OPEC’s MOMR and today by the IEA’s OMR.
The common theme across the key agency reports this month was the focus on supplies, in that non-OPEC supply estimates were raised, led exclusively by the US. The EIA went a bit overboard and now predicts non-OPEC supply growth of 2.3 mb/d y/y, while the IEA at 1.75 mb/d is closer to our estimate of 1.73 mb/d, with the OPEC Secretariat at just 1.40 mb/d. But some of these revisions need to be taken in context. Back in June 2017, for example, we forecasted that 2017 non-OPEC supply growth would average 0.6 mb/d, and actual growth should be close enough at just above 0.7 mb/d, while the EIA varied its forecast between 0.3 mb/d and 1.1 mb/d. The EIA hiking 2018 non-OPEC supply in each of the past three months (a move quickly replicated each month by the IEA) has left balances from both agencies predicting stockbuilds this year.
Strong growth in US supply is an undeniable fact, but some of the recent revisions are eye-catching, especially as they have not been accompanied by equivalent upward revisions to demand. Indeed, much like phenomenal US production growth, hefty Q4 17 stockdraws are also irrefutable. The IEA itself pegs Q4 17 OECD stockdraws at a massive 1.3 mb/d, with December’s monthly draw the highest since February 2011. These draws have come despite US production growth. Clearly that means demand outstripped supplies. But the IEA’s global inventory numbers show a flat balance. The old excuse that perhaps non-OECD stocks rose as a counter-balance does not hold with both Chinese stocks and floating storage down heavily.
The reason the IEA shows no stockdraws in Q4 17 is because the agency revised down its 2017 demand estimates, leading to a massive 1.1 mb/d miscellaneous to balance for Q4 17. The IEA’s demand forecast is the biggest anomaly (and it starts from an underestimated base), forecasting growth at 1.4 mb/d for 2018, lagging OPEC (+1.6 mb/d) and the EIA (1.7 mb/d). The IEA did revise up its demand forecast this month, citing ‘the more positive global economic picture’ published by the IMF (though that was over one month ago), but somewhat oddly put almost all of the revision in Q4 18 and revised down China despite the IMF hiking its economic assessment for the country. We also wonder, why its previously cited price elasticity model failed to provide an additional demand fillip as prices eased.
So, using our OPEC output estimates for 2018, we—like the OPEC Secretariat—expect global stockdraws of 0.2 mb/d, while the IEA expects builds of 0.3 mb/d and the EIA of 0.4 mb/d.