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Page added on October 13, 2015
IEA: Oil Glut To Persist As Global Demand Growth Slows
A global oil supply glut will persist through 2016 as demand growth slows from a five-year high and key OPEC members maintain near-record output, the International Energy Agency said, even as low prices curb supply outside the producer group.
The IEA, which advises industrialised countries on energy policy, said in a monthly report on Tuesday that world oil demand will rise by 1.21 million barrels per day (bpd) in 2016, down 150,000 bpd from last month’s forecast.
“A projected marked slowdown in demand growth next year and the anticipated arrival of additional Iranian barrels – should international sanctions be eased – are likely to keep the market oversupplied through 2016,” the Paris-based IEA said.
The cut in the demand outlook, due in part to a weaker world economy, makes the IEA’s 2016 growth estimate lower than the two other closely watched government forecasters, the U.S. Energy Information Administration and OPEC.
Oil prices, which rose earlier on Tuesday, turned negative after the release of the IEA report.
A drop in prices because of abundant supply to around $50 a barrel – half the level of June 2014 – has led to a downgrade in supply forecasts from countries outside OPEC such as the United States.
Next year, non-OPEC output is expected to contract by nearly 500,000 bpd, the IEA said, as drilling activity slows in the United States and companies elsewhere delay projects.
“Non-OPEC supply growth is disappearing fast,” it said. “The sharpest slowdown is in the U.S., where onshore crude and condensate production has started to drop.”
OPEC Pumps More
While the IEA still sees a contraction in non-OPEC supply next year, it expects supply to be about 100,000 bpd higher than in last month’s report. This, plus the weaker global demand projection, prompted the IEA to cut its estimate of the demand for OPEC oil to 31.1 million bpd.
The Organization of the Petroleum Exporting Countries is already producing more than that, even before a potential lifting of sanctions on Iran clears the way for Tehran to increase exports in 2016.
OPEC raised supply in September by 90,000 bpd to 31.72 million bpd, the IEA estimated, saying it expected output to hover around 31.5 million bpd in coming months.
The group, in a move led by Saudi Arabia, in 2014 dropped its longstanding policy of supporting prices by cutting output, choosing instead to defend market share against higher-cost producers, and there has been no sign of a change of tack.
Iran, traditionally OPEC’s second-largest producer, is keen to recover the market share it lost as a result of tighter sanctions. The pace at which this oil returns is a big uncertainty for next year, the IEA said.
Oil inventories could rise by 1.1 million bpd if Iran brings back an extra 600,000 bpd of oil output over 2016, according to the agency, compared with the 600,000 bpd inventory build-up it assumes otherwise.
This, as well as rising geopolitical tension over Russia’s military intervention in Syria and a wide range in the demand and supply forecasts for 2016, clouds the outlook for now.
“Some of this uncertainty may start to clear next year although, considering Iran, the market may be off balance for a while longer,” the IEA said.
25 Comments on "IEA: Oil Glut To Persist As Global Demand Growth Slows"
Plantagenet on Tue, 13th Oct 2015 2:22 pm
The oil glut continues. Of course, it could end at any time if KSA decides to go back to being the swing producer and stop producing flat out and cut its oil production.
Cheers!
Davy on Tue, 13th Oct 2015 2:32 pm
Demand growth continues to slow and will slow considerably more as the global economy enters a likely marked down turn. All eyes are on 2016 for the economic storm most informed investors know is coming.
rockman on Tue, 13th Oct 2015 2:44 pm
Davy – Exactly. The same dynamics are inplace just as they have always been. No one can make this prediction because is is dependent upon how much the oil exporters VOLUNTARIALLY decide to produce in 2016. I seriously doubt even the KSA is certain how much oil they’ll be willing to sell in 12 months. I’m certain they had not anticipated selling the current record volume back when they were getting $100+/bbl for their oil.
Davy on Tue, 13th Oct 2015 3:48 pm
Rock, yes on the oil patch but no on the economy. This economy is at the next step on the descent gradient. Now we have a fed who is stuck with zero interest rate policy and a global world shouting at them to not raise rates. In effect we are in paralysis economically. The next steps are draconian with unthought of actions of the old post 2008 economic world. We are close to direct injections of money into the economy not the indirect injections currently through the banks. Oil is living within that environment but oil will always have a special environment all to itself.
BC on Tue, 13th Oct 2015 3:53 pm
In terms of the price of oil and oil consumption as a share of final sales per capita, the differential growth rates, and available world net oil exports and the growth rates, there is no “glut”, and the price of oil is not “cheap” in this context.
This phenomenon is manifested by the ceasing of global trade, with real GDP per capita for 70-75% of the world economy decelerating to “stall speed” as long ago as Q3 2014.
Moreover, the recent plunge in M2 velocity to private final sales and the deep recession-like contraction in M2 acceleration occurred previously in 2008, 2001, and the early 1980s.
Therefore, rather than a “glut” of oil, the price of oil is still too high and the lack of growth of oil produced for exports is resulting in a hard global constraint on the supply of oil at a price that will permit growth of real GDP per capita.
That the vast majority of us do not perceive this implies that a similar share of us don’t actually understand Peak Oil and its implications for LTG and EOG.
A test of this thesis will be that the 5- and 10-year average prices of oil will trend lower with declining oil production and demand per capita, as the debt-deflationary regime and its effects become increasingly entrained hereafter into late decade and the early to mid-2020s.
BobInget on Tue, 13th Oct 2015 3:59 pm
Well, if anyone can do anything, it’s the Edelman public relations firm. The largest privately owned PR agency in the world, Edelman is currently representing Saudi Arabia as it manages crises over the impending crucifixion and beheading of a young political critic, and civilian deaths in the Saudi-led military intervention in Yemen. Edelman, highly regarded and highly priced, is now representing Saloner.
http://everything-pr.com/saudi-arabia-edelman/68391/
ncluding ongoing representation of the Embassy to enhance, “the Kingdom’s interests among key groups within the world body and to U.N. observers.”
This newest engagement is a project for $16,500 to “engage with opinion influencers, establish media engagement opportunities for principal, and assist in opinion editorial placement” on behalf of the Saudi Arabian General Investment Authority.
BC on Tue, 13th Oct 2015 4:04 pm
@Davy: We are close to direct injections of money into the economy not the indirect injections currently through the banks.
I suspect so, but I continue to anticipate that the Fed/TBTE banks will eventually submit to printing and overtly buying bank and insurance stocks, equity index futures, and perhaps ETFs, as the BOJ has been doing for years on behalf of pension funds to prevent further debt/asset deflation that risks the entire debt edifice collapsing.
Given the hyper-financialization of the economy, i.e., the stock and bond markets are “the economy”, the Fed and primary dealer financial intermediaries have little choice but to double, triple, and quadruple down as the end-game scenario continues to unfold.
Mind you, I’m not advocating it, but we are now so far into the fat cats’ tail risk zone that one must assume that the Fed will resort to everything and anything to prevent the inevitable, even as the cumulative effects of their actions render the inevitable that much more so in time.
The rentier-socialist elites and their financial oligarchs and technocrats will very likely destroy the village in their desperate, self-delusional attempts to save it for themselves.
BC on Tue, 13th Oct 2015 4:16 pm
Bob, thanks for mentioning Edelman. I crossed paths a few times with employees/consultants back in the day as a so-called economic hit man. To this day, I still recall my jaw hitting the floor when I found out how much the mid- and upper-level employees were paid for the work they did. One can only imagine how many souls they had to sell, including their own, to garner that amount of coin.
Although no one would admit it, The Company utilizes their expertise, including principals and lower-level staffers deeply embedded within the mass media, gov’t, and most industries’ marketing and PR functions.
These guys and gals could construct a persuasive narrative to convince you to sell your mother, wife, and children at their price and then convince you to earn additional cash to recruit your friends and neighbors to do the same.
Their expertise, reach, and influence is such that they could make or break virtually anyone with sufficient compensation and time to gather, compile, and present the goods.
Davy on Tue, 13th Oct 2015 4:43 pm
BC, sounds like a throughly nasty business concern which could be likened to evil. If you get down to the brass tax that shit is evil. What ever evil is. My ideas of evil (non-Religious) is mechanization and dehumanization. WTF kind of world do we want to live in?
JuanP on Tue, 13th Oct 2015 7:24 pm
Plant “The oil glut continues. Of course, it could end at any time if KSA decides to go back to being the swing producer and stop producing flat out and cut its oil production.” I admit that I completely agree with this comment. I’ve been thinking about this for some time. I think that the Saudis will keep pumping flat out indefinitely. I am, of course, aware that Plant has been glut this and Obama that for a while.
Cheers!
JuanP on Tue, 13th Oct 2015 7:33 pm
Davy nailed it at 2:32. Rock “I seriously doubt even the KSA is certain how much oil they’ll be willing to sell in 12 months.” I completely agree, Rock. The temptation to reduce production a bit to raise prices when the time is right will always be there, but doing it on their own would be tough. This is costing the KSA a pretty penny as you often point out. Maximizing income would be the top priority for a government like theirs, and adjusting production with that goal in mind would be logical.
JuanP on Tue, 13th Oct 2015 7:44 pm
BC “Therefore, rather than a “glut” of oil, the price of oil is still too high and the lack of growth of oil produced for exports is resulting in a hard global constraint on the supply of oil at a price that will permit growth of real GDP per capita.” I don’t see a contradiction there. IMO, there is a “glut” of oil precisely because the price of oil is too high and the lack of growth of oil exports, etc.
JuanP on Tue, 13th Oct 2015 7:58 pm
BC “Mind you, I’m not advocating it, but we are now so far into the fat cats’ tail risk zone that one must assume that the Fed will resort to everything and anything to prevent the inevitable, even as the cumulative of their actions render the inevitable that much more so in time.” I could have written that myself. Also, with every day we delay the unavoidable, the ultimate cost increases.
Boat on Tue, 13th Oct 2015 9:10 pm
JaunPP
BC “Therefore, rather than a “glut” of oil, the price of oil is still too high and the lack of growth of oil produced for exports is resulting in a hard global constraint on the supply of oil at a price that will permit growth of real GDP per capita.” I don’t see a contradiction there. IMO, there is a “glut” of oil precisely because the price of oil is too high and the lack of growth of oil exports, etc.
Yes, keep repeating that long enough and it may make sense to you. Even though almost every year is a record year for production. And oil is around 1.80 cheaper per gallon than it has been for 6 years. Is doomerism a cult? Do you have to lay down in front of a train to prove your worthy? Or just repeat after me. Oil is cheap therefore the economy will slow and the world will collapse.
BC on Tue, 13th Oct 2015 9:34 pm
Boat, I can only offer a deep sigh and wish you (and all on this list who take their valuable time to read what you and I write) well.
Peace, brother.
makati1 on Tue, 13th Oct 2015 9:45 pm
As the good ship USS Debt goes down, I expect all of those mutual funds, 401ks, etc to be ‘nationalized’ and doled out to the owners like they dole out Social Security. After all, there are trillions just sitting in those accounts not being spent. And they will require that everyone has a plastic card to track their purchases. No cash.
Glad I live here where plastic use is still mostly in bag form and only a small percent of the population have bank accounts. Cash is king. You have it or you don’t. Credit is for the top 10% or so.
GregT on Tue, 13th Oct 2015 10:31 pm
“I could have written that myself. Also, with every day we delay the unavoidable, the ultimate cost increases.”
Absolutely agree BC and Juan. We have dug the hole so deep already, that I doubt we’d be able to climb out of it even if oil did became cheap again. All we are doing now is digging the hole even deeper, and it’s beginning to fill up with water. We’re doing nothing now but adding more and more problems on top of predicaments.
platinumshore on Wed, 14th Oct 2015 2:17 am
Bigger question is how much of the energy glut, rather than production glut, disappears when you remove refinery gain and other artificial pro production tweaks – it’s net energy, not net production that is key.
shortonoil on Wed, 14th Oct 2015 9:38 am
“A test of this thesis will be that the 5- and 10-year average prices of oil will trend lower with declining oil production and demand per capita, as the debt-deflationary regime and its effects become increasingly entrained hereafter into late decade and the early to mid-2020s.”
The oil age ends when the petroleum industry can no longer make money producing oil.
http://www.thehillsgroup.org/depletion2_022.htm
The end game will be the cannibalization of infrastructure to keep any possible level of positive cash flow. This is already occurring in the shale industry through the formation of a mountain of debt that it can never be repayed. Central Banks are complicit in this event by following a monetary policy designed to keep zombie companies in business. They apparently intend to follow a policy of draining all wealth from the economy to reduce exposure to the banking industry, and themselves. Their fee money is backed by a loan from the general economy, and they intend to be the ones who will collect the interest on it when it becomes due.
BC on Wed, 14th Oct 2015 12:09 pm
short, I fully concur.
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=28I6
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=28Ia
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=28Ic
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=28If
Banks have piggybacked on Wall St., PE, and hedge fund funding of the shale and energy-related transport sectors (having recently piled in anticipating a rebound in the price of oil), bubbling up commercial and industrial (C&I) loans to a share of final sales last witnessed at previous business cycle peaks.
Historically, there is rarely a bubble or bubbles without banks following asset prices higher by piling in and levering up, growing loans at a compounding doubling time of 5-7 years, only to result bubbles that burst and must be bailed out.
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=28Ix
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=28IJ
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=28IH
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=28J8
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=28Jg
Well, the banks have done it again, and C&I loan charge-offs and delinquencies are bottoming and beginning to pick up again as in 2007, 1998, and 1989.
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=28GP
BTW, wholesales sales and inventories are clearly recessionary, but Wall St. and most eCONomists are ignoring conditions in the real economy just as they did in 2008 and 2001 long after a recession had begun.
Apneaman on Wed, 14th Oct 2015 12:55 pm
Boat, the entire edifice of industrial civilization was not built on what you are referring to as “cheap” not by a long shot. If oil was always this “cheap” a great deal of it would have never been built. That’s your problem boat – you’re defining cheap as something it is not and using it to rationalize away reality. You’re personal anecdotes on how much you spend fueling up the truck don’t mean shit. You’re 58, but if you were 18 and just starting out you would be singing a different tune.
If You’re Young, The Job Outlook Is Grim No Matter Where You Live
The world needs at least 600 million new jobs in the next decade for young people
http://www.bloomberg.com/news/articles/2015-10-13/if-you-re-young-the-job-outlook-is-grim-no-matter-where-you-live
Just forget about your go to robots explanation. Robots don’t build infrastructure. If oil is so cheap how come they are letting the infrastructure rot? How about because they know there will be no long term return on most of it because there will be no need for it, because there will not be the energy?
61,064 Failing Bridges Must Wait as Cities Borrow at Decade Low
http://www.bloomberg.com/news/articles/2015-10-06/61-064-failing-bridges-must-wait-as-cities-borrow-at-decade-low
Taking a road trip this summer? Enjoy America’s crumbling infrastructure
http://www.theguardian.com/travel/2015/jul/27/america-infrastructure-roadways-highways-funding
Aging US Power Grid Blacks Out More Than Any Other Developed Nation
http://www.ibtimes.com/aging-us-power-grid-blacks-out-more-any-other-developed-nation-1631086
Davy on Wed, 14th Oct 2015 1:30 pm
Ape Man, we easily have 600Mil open job positions as share croppers but the numb nuts are afraid to work and live like serfs. Just wait until they get hungry.
Apneaman on Wed, 14th Oct 2015 2:03 pm
Davy, you mean like when they got hungry before the French revolution?
Do you really think these young people are not aware that they are paying for boomer pensions and privileges while making the shittest wages with almost no benefits for the last 100 years? They know they will never see a dime of pension contributions or 95% of the goodies that the generations above them are enjoying now. They are virtually powerless in the existing order, so why play along? This is the way it often goes in dying civilizations – a passive fuck you to the haves from the have nots. If you’re in your late teens or 20’s you’re fucked – left a huge mess created by those who came before. Look at the difference in education in just 2 generations. It was intentional dumbing down. Who’s fault is that? Why would they want to participate in a system whose only purpose now is to keep gen Xer’s and boomers comfortable until death or collapse? They are in a totally different world then when we were starting out. If they ever get organized they might not be so passive.
Davy on Wed, 14th Oct 2015 4:02 pm
No arguments Ape Man, my point is hunger is going to drive us back to the land and all of us rich and poor. Either by working the land for food or being buried in it because we starved not trying. I am preparing to live no better than a serf. These kids should be told this is their future also. Instead they have these grandiose ideas of this and that and all that just ain’t going to happen.
BC on Wed, 14th Oct 2015 4:15 pm
Had it not been for primarily US supranational firms, and Japanese firms piggybacking, investing trillions of dollars in China-Asia since the 1980s-90s via offshoring, tech transfer, infrastructure investing, trade credit, etc., China would not have developed at anywhere close to the rate it has or achieved the level of industrialization (and unprecedented scale of pollution, loss of arable land, etc.).
China’s “miracle” was Made in the USA.
But now the “miracle” will be seen for what it really is: the largest credit and fixed investment bubble as a share of GDP in world history.
All bubbles burst, and the largest bubbles burst spectacularly and quite often with devastating economic and social dislocation and political instability and reaction.