This week the key agency forecasts have been published: EIA’s STEO on Tuesday, OPEC’s MOMR yesterday and the IEA’s OMR this morning.
Revisions across key agency reports over the course of this week were fairly benign. Demand for 2018 was left mostly unchanged, while 2019 demand growth was revised modestly lower as all three agencies pointed to downside risks due to trade war and broader economic concerns.
The bigger story this month came in the form of the downward revisions to non-OPEC supply estimates—especially by the EIA, which revised 2019 non-OPEC supplies lower by a huge 0.25 mb/d, though this cut was from an unreasonably high starting point. The reductions to 2019 output growth made by the OPEC Secretariat and IEA were modest, with the IEA revising outright levels higher on the back of strong Brazilian ethanol production. The EIA cited infrastructure constraints as the key reason for slower US production growth than it had initially expected. The key difference between our US production growth figure and theirs has always been the fact that we run an infrastructure-constrained production model, which forecasts lower growth.
The discussion around OPEC focussed on Iran and how exports had started to fall well before the 4 November deadline for US sanctions. The IEA notes that some Iranian production is likely to have been moved into on-land storage tanks during August—a supposition confirmed by satellite imagery data from our partners at Orbital Insights. The NIOC is also starting to store some crude in its own tankers, currently sitting off Kharg Island, as purchases from India and China decline. As a result, spare capacity is back in focus, and while nameplate spare capacity may be 2.7 mb/d, according to the IEA, the agency notes that as this extra capacity has been idle, it is not clear exactly how much (beyond what is widely thought to be ‘easy’ to bring online) will be available to coincide with further falls in Venezuelan exports and a maximisation of Iranian sanctions—a view we have expressed for many months. The IEA also notes a mismatch in quality between existing spare capacity (light crude) and the loss of sour crude from Iran and Venezuela.
Meanwhile, inventory trends were less favourable in August having fallen relative to the five-year average through much of the year. Indeed, May and June commercial inventory levels were revised lower while July’s builds were less than half the seasonal norm. However, preliminary total liquids data show August stockbuilds of 27 mb m/m, to 2,851 mb, compared to seasonal builds of 11 mb, reducing the deficit to the five-year average to 33 mb. The culprit was lower-than-usual crude stockdraws as refinery runs were hobbled by the northern hemisphere heatwave.