In its first report of 2012, the IEA cut its 2012 oil demand forecast 0.2mmbd to 1.1mmbd. The principal reason for the cut was a YoY drop in 4Q11 demand, the first YoY quarterly drop in demand since the tail-end of the credit crunch.
The IEA bases its demand forecast on IMF growth projections, which it highlighted as being likely to be downgraded. With the World Bank having just cut its global GDP forecast for 2012 from 3.6% to 2.5%, it would not be surprising if the IMF came to a similar end point, likely triggering a further downgrade to the IEA’s oil demand growth estimate. In addition, both the mild start to 2012 and the weak initial demand growth data from the US suggest that further cuts to demand growth are likely, we believe.
The IEA publishes a downside case using 2.6% for global growth in 2012, rather than the 3.9% on which its current forecast is based. That downside case indicates zero YoY growth with demand flat at 88.8mmbd.
The IEA’s current 2012 forecast puts the call on OPEC crude at 30.0mmbd while it pegged OPEC crude production in December at 30.9mmbd, with indications that OPEC supply is increasing in January.
On current IEA projections and assuming OPEC production remains flat, OECD days forward cover (DFC) could reach 61.5 days by the end of 2012, we calculate, higher even than 1H09. With demand 1.1mmbd lower, OECD DFC could reach 66 days. We do not believe that the level of DFC would be consistent with USD 100+/bbl oil.