Global oil supply faces tricky rebalancing despite output fall in Sept, says IEA


Global oil supply fell in September as the Organization of the Petroleum Exporting Countries (OPEC) as well as allied producers improved their compliance with agreed output levels, but the market faces a tricky rebalancing due to a recent increase in covid infections, according to the International Energy Agency (IEA).

“Our global demand and supply estimates (including an assumption of full compliance with the OPEC+ agreement) imply a significant stock draw of 4 million barrels/day in the fourth quarter. While this is a large change, it is happening from record high levels,” the IEA said in its latest Oil Market Report.

The energy alliance agreed in July to cut output by 7.7 million barrels per day from August through to December, in an effort to improve  oil prices by limiting supply. Iraq and others also pledged to produce below their quotas in September to offset overproduction earlier in the year. Global supply fell 0.6 million barrels/day to 91.1 million barrels/day in September, down 8.7 million barrels/day in 2019.

OPEC leader Saudi Arabia and non-OPEC major producer Russia, the two biggest producers in the group, have both pushed for full compliance in recent months.

The uncertain outlook means that the draw down of stocks could falter and this is reflected in the front of the forward curve for Brent crude oil dropping, says the IEA. It added that prices are not expected to recover to $50/barrel until 2023.

  “Truly, those wishing to bring about a tighter oil market are looking at a moving target,” the energy agency said. 

Details of the report:

  • Global supply fell 0.6 mb/d to 91.1 mb/d in September, down 8.7 mb/d on 2019, as the UAE slashed output and maintenance cut flows in the North Sea and Brazil, more than offsetting a US rebound from August’s hurricane shut-ins. In 4Q20, world supply may rise towards 92 mb/d from 91.3 mb/d in 3Q20 if Libyan output continues to recover and assuming OPEC+ produces to its target. Total non-OPEC supply is set to drop by 2.6 mb/d in 2020 before recovering by 0.4 mb/d in 2021.
  • Global oil demand rose 3.4 mb/d month-on-month (m-o-m) in July, as coronavirus restrictions eased and summer holidays in the northern hemisphere supported a rise in transport fuel demand. However, a second wave of Covid-19 cases and new movement restrictions are now slowing demand growth. Our 2020 forecast is unchanged at 91.7 mb/d, down 8.4 mb/d from 2019. Our 2021 forecast is also largely unchanged at 97.2 mb/d, showing a gain of 5.5 mb/d from 2020.
  • Strong gains in global refinery throughput in July and relatively stable runs in August and September came at the cost of steep falls in margins, which in 3Q20 saw one of their worst quarters. In 4Q20, demand and refining forecasts imply large product stock draws, but refinery margins may not get an immediate boost. In 2021, runs will rebound only partially, to levels last seen in 2015.
  • In August, OECD industry stocks fell by 22.1 mb (0.71 mb/d) m-o-m to 3 194 mb, and were 209.1 mb above their five-year average level. Preliminary data for September show that crude stocks in the US and Japan fell by 6.5 mb and 1.8 mb, respectively, while those in Europe rose by 3.3 mb. Implied global stocks fell by 2.3 mb/d in 3Q20 and are projected to fall by 4.1 mb/d in 4Q20. In September, volumes of crude oil held in floating storage fell sharply by 70 mb (2.33 mb/d) to 139.1 mb.
  • Crude futures fell in September versus August, partly reflecting weaker financial markets. ICE Brent fell by-$3.15/bbl and NYMEX WTI by -$2.76/bbl m-o-m to $41.87/bbl and $39.63/bbl, respectively. Prices saw a 10% early-October jump ahead of Hurricane Delta. Physical prices e.g. North Sea Dated, remained below the futures front month reflecting a well-supplied prompt market. Freight rates remain at historically weak levels as tanker activity sits at a near 10% deficit to 2019 levels.

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