The past three days have seen each of the key agencies publish their monthly forecasts. The EIA’s STEO on Tuesday, OPEC’s MOMR came out yesterday, while the IEA published the OMR this morning.
The supply-demand estimates for all three agencies continue to diverge sharply. The EIA and OPEC continue to overestimate non-OPEC supplies while the IEA is still a touch bearish on 2018 demand. One estimate that stands out sorely is the EIA’s forecast for 2018 non-OPEC supply growth, at a staggering 2.6 mb/d, which we believe is as much as 1.0 mb/d too high as the EIA fails to fully account for supply bottlenecks in the US. Their 2019 supply estimate is now at an eye-catching 2.27 mb/d, at a time when US and Canadian infrastructure bottlenecks intensify.
The IEA cites global demand growth of 1.4 mb/d in 2018. While there are plenty of downside risks to the global economy right now thanks to the burgeoning trade war between China and the US, the IEA’s Q3 18 demand growth estimate of just a 0.5 mb/d q/q seems extremely pessimistic. We expect the q/q swing in Q3 18 demand to be around 1 mb/d, particularly given one-off events such as the truckers strike that weighed severely on Brazilian demand in May. Still, we are cognisant of the rising threats to demand, particularly for gasoline.
The divergence between 2019 forecasts is even larger. Both the EIA and OPEC forecast plump non-OPEC supply gains of 2.3 mb/d and 2.1 mb/d respectively, while the IEA forecasts 1.8 mb/d of growth. We forecast growth of 1.2 mb/d because of a more sceptical approach to gains from the US and Brazil. These respective extremes are also reflected in the 2019 demand forecasts. The EIA forecast growth of 1.7 mb/d, with OPEC at 1.5 mb/d and the IEA at 1.4 mb/d. The discrepancy between these and our own 1.2 mb/d 2019 demand forecast is attributable to our expectation of tighter markets and its associated price impact. Indeed, we believe that we will be in a supply-constrained world next year and so demand must ease.
Preliminary June OECD stocks point towards inventories falling by 8.8 mb (in line with the five-year average), to 2,832 mb. The deficit to the five-year average eased to 19.6 mb. Crude stocks fell by 25.6 mb, while product stocks, led by LPG, rose by 16.8 mb. However, we expect crude stocks to be revised up as high imports likely led to a build in European crude inventories. Both crude and products days of forward cover are well below the five-year average. The other issue in the market, as the IEA pointed out, is the lack of spare capacity, which currently underpins oil prices. The IEA see no sign of higher production from elsewhere that might ease fears of market tightness. This is likely to mean plenty of volatility in oil prices going forward.