Key agencies published their forecasts this week. EIA published STEO on Tuesday, OPEC its MOMR yesterday and IEA published OMR this morning.
The key agency reports were a mixed bag with the EIA reversing all the changes it made last month to its demand estimates, the OPEC Secretariat keeping its demand estimates unchanged and the IEA making small downgrades. All three agencies now expect global oil demand growth in 2019 to be less than 1 mb/d y/y, with the EIA the most bearish at 0.75 mb/d and the IEA and OPEC Secretariat mostly aligned at just under 1 mb/d. We are in between, forecasting 0.8 mb/d of growth.
Even with US production slowing, the key agencies expect a surge in 2020 non-OPEC supplies due to healthy growth expected from non-OPEC ex-US countries, despite both the EIA and IEA revising supply estimates for 2020 lower. The EIA are the most bullish, expecting 2.3 mb/d of growth, followed by the OPEC Secretariat at 2.2 mb/d and then the IEA at 2.1 mb/d. We expect lower growth at 1.7 mb/d and we believe key agency forecasts will be revised lower. The agencies, with the exception of the IEA, remain too optimistic on US growth (both the EIA and the OPEC Secretariat forecast liquids growth of over 1.5 mb/d compared to our estimate of 1.17 mb/d). Moreover, all three agencies remain too optimistic on Brazilian growth, even as Petrobras now only expects a token increase in crude output to 2.15–2.25 mb/d in 2020, versus 2.05–2.15 mb/d in 2019, due to natural declines and heavy maintenance. We have revised our Brazilian forecasts lower to show 0.16 mb/d of y/y growth in 2020. While the last of the mega projects are starting up now and over Q1 20 in Brazil, Guyana, Canada, the US Gulf of Mexico (GoM), Norway and the UK, capacity additions do not necessarily equate to production growth, especially given high underlying decline rates in countries such as Brazil and Norway.
Our 2019 call on OPEC is 30.59 mb/d for 2019, falling to 29.8 mb/d in 2020, the latter being the most bullish forecast on the street. The OPEC Secretariat is a close second at 29.6 mb/d, followed by the EIA (29.2 mb/d) and the IEA (29.0 mb/d). The IEA raised its expectation for the 2020 call. Importantly, while liquids balances are forecast to build in 2020, our crude balances show a stockdraw (0.2 mb/d) even with us pegging OPEC output 1 mb/d higher in H2 20 versus Q1 20 as fundamentals tighten. Stocks are already low, with the latest IEA data on OECD stocks showing November OECD commercial stocks falling by 23.5 mb, versus the five-year average draw of 4 mb. This pushes liquids inventories 22.1 mb below the five-year average, with crude stocks 24.6 mb below. October OECD stocks also fell sharply, at double the five-year average drawdown rate. Clearly, the crude oil market is entering 2020 on a strong footing with little inventory buffer, but this is being masked by liquids inventory builds, which is what key agencies and generalists in the market focus on. So, the tightness in crude will continue to be reflected in steep backwardation.