This week the key agency forecasts have been published. EIA published STEO on Tuesday, OPEC it’s MOMR yesterday and the IEA published OMR this morning.
Even after a period of significant demand weakness, only one of the three key agencies has trimmed its forecasts. The EIA slashed its overly optimistic demand outlook by 0.15 mb/d to 1.1 mb/d, while the other agencies barely changed their predictions despite the IEA noting that demand growth in Q1 19 slumped to 0.31 mb/d y/y, which it said was the lowest figure since ‘the end of 2011’, on warm weather in OECD countries and slowing global economic activity. But all the agencies remain extremely bullish on H2 19 demand growth, which we caution against. Each agency continues to forecast higher numbers than our 0.9 mb/d view. OPEC, meanwhile, though still too upbeat on 2019 demand growth (+1.1 mb/d), published its 2020 estimate for the first time this month, also 1.1 mb/d y/y, an estimate we believe will prove the most accurate of the agencies. The EIA and IEA both still predict 1.4 mb/d demand growth for 2020.
Both the IEA and EIA revised up their already heady 2019 non-OPEC supply growth estimates—both by 0.1 mb/d—to 2.0 mb/d and 2.3 mb/d respectively, versus our 1.9 mb/d estimate. Similarly, for 2020, each of the three key agencies continues to take an overly bullish stance on non-OPEC supply growth, with OPEC predicting growth of 2.4 mb/d—0.9 mb/d over our 1.5 mb/d estimate—while both the IEA and EIA cite an expected 2.1 mb/d gain.
The EIA shows the call on OPEC—the potential market tightness—dropping in both 2019 (by 1.1 mb/d) and 2020 (by 0.5 mb/d), a sentiment echoed by both the IEA (showing consecutive declines of 0.8 mb/d) and OPEC (by 1.0 mb/d in 2019 and by 1.3 mb/d in 2020). We similarly show drops in both years—down by 0.7 mb/d in 2019 and 0.3 mb/d in 2020—although our reasoning takes account of weak demand and is less centred on surging non-OPEC supplies. Of the three agencies, we believe that the EIA best captures the short-term dynamics, as it is the only agency to see the predicted decline in the call on OPEC easing in 2020.
Moreover, the current market remains tight despite the focus on looser 2020 balances. Particularly most illuminating is the huge downward revision to the IEA’s reported commercial OECD stockbuild for May—to 22.8 mb, the polar opposite of the 58.4 mb build shown by preliminary data—which is also lower than the five-year average build of 32.6 mb, reducing the overhang to 6.7 mb. Preliminary June data show crude stocks down by more than seasonal averages, by 23 mb, extending the deficit to the five-year average to 14.1 mb.