This week has seen all three of the key agency forecasts published. EIA published STEO on Tuesday, the OPEC Secretariat released MOMR yesterday, and the IEA published OMR this morning.
Having underestimated demand growth in 2018, all three key agencies now seem to be overestimating 2019 demand as they have missed the gravity of the recent slowdown in global demand. Their models overly focus on price impacts (which have recently turned positive for demand) vs economic drivers (which have clearly turned negative)—the EIA forecasting 2019 growth at 1.5 mb/d, the IEA 1.4 mb/d and OPEC 1.3 mb/d. Moreover, they rely on institutional forecasters, such as the IMF, World Bank and/or the OECD, which have all historically been incredibly slow to capture turning points. We believe given the current economic landscape, particularly the current Sino–US trade impasse, global demand growth should slow to around 1.0 mb/d in 2019. Economic sentiment has been damaged, evident in the sharp collapse in petrochemical prices as end users are destocking, while inflationary pressures are on the rise, adding upside pressure to interest rates. The key agencies will have to revise demand lower.
The greatest dichotomy between the three agencies resides in their forecasts of 2019 non-OPEC supply growth. On the one extreme, the EIA forecasts 2.3 mb/d of growth and OPEC 2.2 mb/d, while the IEA has finally (after months of over-estimating non-OPEC supplies) lowered its estimates to 1.5 mb/d (we estimate +1.6 mb/d), highlighting the cuts in Canada and the OPEC+ deal as the reason. We do not think that the EIA and OPEC have fully accounted for these reductions, although Canadian production estimates will be volatile next year as the Albertan government continues to conduct monthly reviews of the region’s output.
So, the OPEC Secretariat predicts the 2019 ‘call’ on OPEC at 31.4 mb/d, while both the EIA and IEA envisage 31.6 mb/d, with the IEA lower than our estimates despite showing a higher demand growth number and lower non-OPEC supply growth figure as they seem to have forgotten to adjust OPEC NGLs lower following the OPEC+ cuts for 2019. Our own models depict a 32.0 mb/d call on OPEC crude, implying an average stockdraw of 0.2 mb/d in 2019. Meanwhile, the IEA sees the market moving into a deficit by Q2 19, assuming 100% compliance with the OPEC deal.
The latest preliminary stock numbers, from the IEA, show OECD commercial inventories unchanged at 2,872 mb in November, compared to a normal seasonal draw of 16 mb. This means stocks were 28 mb above the five-year average, although on a days of forward cover basis crude declined to 28 days (one day less y/y) and products to 36 days (flat y/y).