Crude oil prices continued their slide yesterday mostly driven by the surprise devaluation of the Chinese currency. This action by the Chinese government sent a message to the world that all is not rosy in China and stimulus and monetary policy actions will continue to be the norm.
So far in early morning trading, prices are rebounding modestly on a supportive monthly oil market forecast issued by the International Energy Agency (IEA). The IEA forecast showed a stronger than anticipated level of global demand as well as non-OPEC crude production moving into a modest contraction in 2016.
The IEA indicated in its report that the long-awaited rebalancing of the global oil market has begun but is likely to last through 2016 as the supply overhang is expected to persist through 2016. Overall it was a supportive report but one that is still projecting supply to outstrip demand through 2016. The IEA report was more optimistic and supportive than either the EIA or OPEC reports issued yesterday.
Following are the main highlights of the report.
- Crude oil prices fell sharply during July and into early August, pressured by an abundance of supply and a strong U.S. dollar. By early August, global benchmarks had sunk around 25% below end June levels. At the time of writing, ICE Brent was trading at around $49 per barrel while Nymex WTI was at $43.30 per barrel.
- Global oil demand in 2015 is expected to grow by 1.6 million barrels per day, up 0.2 million barrels per day from our previous report and the fastest pace in five years, as economic growth solidifies and consumers respond to lower oil prices. Persistent macro-economic strength supports above-trend growth of 1.4 million barrels per day in 2016.
- World oil supply fell nearly 0.6 million barrels per day in July, mainly on lower non-OPEC output. OPEC crude production held steady near a three-year high. As lower prices and spending cuts take a toll, non-OPEC supply growth is expected to slow sharply from a 2014 record of 2.4 million barrels per day to 1.1 million barrels per day this year and then contract by 200,000 barrels per day in 2016.
- OPEC crude supply inched 15,000 barrels per day lower in July to 31.79 million barrels per day as Saudi output eased and offset record high Iraqi production and increased Iranian flows. The 'call on OPEC crude and stock change' rises to 30.8 million barrels per day in 2016, up 1.4 million barrels per day on this year due to a stronger demand outlook and stalling non-OPEC supply growth.
- OECD inventories rose counter-seasonally by 9.9 million barrels to hit another all-time high of 2 916 million barrels in June with their surplus to average levels widening to a record 210 million barrels. As the seasonal restocking of 'other products' continued apace, refined products by end-month covered 31.3 million barrels days of forward demand.
- Global refinery runs reached a record 80.6 million barrels per day in July, 3.2 million barrels per day up on a year earlier, but fissures are showing. High distillate stocks have pushed cracks in Singapore down to their lowest level since 2009 and prompted run cuts in Asia. Elsewhere, especially in the United States, still-soaring gasoline cracks supported high margins and throughput.