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Oil in Global Economy Series: Key highlights from IEA’s June OMR

The International Energy Agency (IEA) released its monthly oil market report. The watchdog warns of a slowdown in demand amid tight supplies. Here are the key highlights,

Global supplies:

  • Global oil supplies declined for the eighth consecutive month in June. It declined thanks to production decline in Canada, Libya, and Iran.
  • The supplies have declined sharply since November and by 3.5 million barrels per day.
  • IEA expects non-OPEC supply growth to slow down to 2 million barrels per day in 2019 after a record gain of 2.8 million barrels per day in 2018. The figure is higher than December when IEA forecasted 1.6 million barrels growth and higher than March’s 1.7 million barrels estimate.  The revision is largely due to production in the non-OPEC countries led by the United States.
  • IEA expects supply growth to rise to 2.1 million barrels per day in 2020 largely due to solid production in the U.S., Brazil, and Norway.

OPEC supplies:

  • According to IEA’s calculations, OPEC production was 30 million barrels per day (5-yr low) in April, down 2.8 million barrels from December as Saudi Arabia, UAE, and Kuwait reduced production, while Venezuela and Iran saw production dwindle due to geopolitical uncertainties.
  • According to IEA, OPEC spare capacity is currently at 3.2 million barrels per day.
  • However, IEA expects OPEC production to decline further heading to 2020, as non-OPEC production rises.

Global demand:

  • IEA downgraded its global oil demand growth forecast for the second consecutive month to 1.2 million barrels per day for 2019, largely due to lower demand from non-OECD Asia. However, IEA expects new petrochemical projects in China and better economic activity to provide support to demand growth, in H2 2019.
  • In Q1 2019, growth was 0.31 million barrels per day. Q2 growth at 0.8 million barrels per day and H2 expected at 1.8 million barrels per day.
  • 2019 demand would be driven by non-OECD countries like India and China, which are estimated to account for 1 million barrels growth.
  • OECD demand would be driven by the United States while Europe lags.
  • Global oil demand is expected to average 100.4 million barrels per day in 2019.
  • IEA forecasts 2020 demand growth at 1.4 million barrels per day.

Global inventories:

  • On the inventory side, IEA report shows that OECD commercial stocks rose by 22.8 million barrels in May, the 7th rise in 11 months.
  • OECD commercial stocks are currently at 2,906 million barrels.
  • According to IEA, OECD holdings are higher than the 5-year average. In days of forward demand, stocks amount to 60 days, 1.5 days below average.

WTI is currently trading at $60.4 per barrel and Brent at $6.6 per barrel premium to WTI.

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