This week the key agency forecasts have been published. EIA published STEO Tuesday, the OPEC Secretariat released MOMR yesterday and the IEA published OMR this morning.
Despite clear signs that global demand growth in 2018 remains robust, only two of the three key forecasting agencies raised their estimates this month. The exception was the IEA, which admitted that it under-reported Q1 18 OECD demand by a staggering 0.32 mb/d, but it remains intransigent—it now forecasts a wildly pessimistic 1.47 mb/d for 2018, 0.32 mb/d below the EIA’s shrewder estimate of 1.79 mb/d (up by 0.11 mb/d up on its previous estimate). OPEC raised its own 2018 global demand growth estimate by 70 thousand b/d to 1.63 mb/d. The greatest concern with the IEA’s numbers is that as it has so obviously got the present wrong, erroneously showing Q2 18 demand growth down to a near two-year low of 1.0 mb/d y/y, significantly reduces the credibility of its forecasts. Our own more detailed analysis shows Q2 18 growth closer to 1.5 mb/d y/y, with the IEA heavily under-reporting the Americas (both North and South) and non-OECD Asia.
The discrepancy between the forecasts of non-OPEC supply is even greater, with the EIA citing 2018 growth of 2.6 mb/d (on an overtly bullish US forecast), 0.7–0.8 mb/d above the IEA (1.8 mb/d) and OPEC Secretariat (1.7 mb/d) estimates. Although we generally agree with the underlying assessments within the EIA’s US numbers, our own analysis is for a more subdued 1.8 mb/d total non-OPEC supply gain, matching the IEA’s and OPEC’s figures.
The consequence of these two erroneous forecasts leave both the IEA and EIA estimates for the crucial 2018 ‘call-on-OPEC’ woefully low at 32.4 mb/d and 32.1 mb/d versus our own forecast of 32.8 mb/d. Such error margins carry added significance today as OECD stocks in February stood just 30 mb above their five-year average and the overhang had been run down to just 24 mb by March. Even comparing estimates to a lower five-year average of 2011-2015 gives an excess of just below 40 mb. For all intents and purposes, the overhang has now disappeared as these figures will also include infrastructure fills that are not available to the market. Over-estimating either supply (EIA) or demand (IEA) causes these organisations to misdiagnose the pace of stock change for the rest of the year. We have long noted that inventories did not build in Q1 18 and the IEA finally acknowledged that in today’s report, showing a small 0.1 mb/d draw. Still, their balances continue to allude to builds for the rest of the year compared to our estimates of 2018 stockdraws averaging 0.5 mb/d. Getting the numbers right in such a closely balanced market is key, particularly as oil prices test $70 a barrel.