IEA’s bearish figures paint sharper over-supply picture

For those still puzzled over stubbornly supra-$100/barrel oil prices, the International Energy Agency’s latest monthly report Tuesday provided a wealth of fresh bearish data set to further baffle oil market watchers.

The report, which came a day after the IEA’s headline-grabbing annual World Energy Outlook, supports a gloomy outlook for global oil markets with further cuts to its headline demand forecasts due to concern over the health of the global economy.

The Paris-based agency cut its forecast for global oil demand in 2012 by 80,000 b/d to 89.59 million b/d and lowered its estimate for 2013 by 70,000 b/d to 90.42 million b/d.

The IEA also cut its estimate of global demand for the fourth quarter of 2012 by 300,000 b/d from last month’s report, to 90.1 million b/d, partly as a result of Hurricane Sandy in the US.

Global demand is now forecast to grow by 670,000 b/d in 2012, 60,000 b/d less than predicted last month. Next year, demand is now seen growing by 830,000 b/d, 20,000 b/d higher than last month’s forecast.

The IEA also warned that its demand projections could contract further given lingering concerns over Europe’s ongoing European crisis and the so-called “fiscal cliff” of potential tax hikes and spending cuts looming in the US.

“This is a big admission for an agency that likes to err on the high side when it comes to demand projections,” VTB Capital noted.

Indeed, the weak demand outlook alone is yet sufficient reason to wonder how oil prices how oil prices have lost less than 15% in value in 2012.

The IEA has now slashed its estimates of world oil demand for the fourth quarter of 2012 by a combined 850,000 b/d since June.

There were more bearish signals on the supply side.

Confirming its recent longer-term projections, the IEA also pointed to a drop in demand for OPEC’s crude over the next year, helped by growing volumes of US shale oil. Non-OPEC oil is now forecast to grow by 860,000 b/d in 2013 to 54.1 million b/d, that’s 150,000 b/d higher than its previous forecast.

As a result, IEA cut its demand estimate for the “call on OPEC crude” by 500,000 b/d for Q4 2012, to 30 million b/d and cut the “call” for 2013 by 200,000 b/d to 29.8 million b/d.

The 2013 figure is almost 1.4 million b/d less than OPEC’s current levels and could likely fuel expectations that the producers cartel will be forced to cut its output levels soon to help shrink the gap.

In addition, the IEA said that OPEC’s output fell in October to 31.15 million b/d mainly as a result of continuing production flooding in Nigeria. These are volumes which should come back on stream shortly, creating further pressure on oil markets.

The IEA’s monthly oil inventory data only exacerbated the bearish set of figures.

OECD stocks saw a strong counter-seasonal build in October, which comes a month after industry stocks rose by a “steep” counter-seasonal 15.2 million barrels.

Revisions to preliminary data for August, which had initially shown a draw, now show that stocks built that month as well, making the September gain the seventh consecutive monthly increase in OECD oil inventories, the IEA said.

With forward demand cover now at 59.6 days, OECD oil stocks are now way above their five year average.