The IEA’s November report sees cuts to its demand growth forecast and confirms a substantial QoQ pick-up in non-OPEC production, resulting in a cut in the sequential call on OPEC crude for 4Q12 of 0.9mmb/d to 30.0mmb/d, well below current OPEC crude production of 31.2mmb/d. Moreover, OECD oil inventories, which had initially been reported as falling in August have been revised up substantially, while an even larger than expected counter-seasonal build for September has now been confirmed, with a further counter-seasonal build in the offing for October. We continue to expect current supply/demand dynamics (Figure 1) to produce a substantial further downward correction in price, requiring a cut in OPEC production (see IEA Data November report; call on OPEC cut, inventory up, of 13 November).
The IEA has cut its 4Q12 and FY12 demand estimates 0.3mmb/d and 0.1mmb/d, respectively, mainly reflecting the weakness in European demand and the impact of Hurricane Sandy, which is estimated to have reduced US demand 230kb/d in October. FY13 demand growth was also cut 0.1mmb/d, with FY13 demand now put at 90.4mmb/d, up 0.9% YoY after growth of 0.7% in FY12 to 89.6mmb/d.
Non-OPEC liquids supply is seen recovering sharply, rising 840kb/d in October after weather disruption and a return from particularly disruptive seasonal maintenance. The IEA’s FY12 non-OPEC supply forecast is unchanged at 53.2mmb/d, up 460kb/d YoY, despite the number of major unforeseen disruptions, and is forecast to grow 860kb/d in 2013 to 54.1mmb/d.
The IEA estimates OPEC crude production fractionally down, by 20kb/d, MoM at 31.2mmb/d in October, mainly as a result of continuing production disruption in Nigeria. Both Saudi and Iranian production were up MoM. We believe it is quite likely that OPEC production will increase through the balance of the year as Nigeria recovers from its flooding problems and as capacity is added elsewhere within OPEC.
In its October report, the IEA initially reported a MoM draw in August OECD oil inventory, which looked at odds with the supply/demand data. That data has now been revised to a build with a further substantial and counter-seasonal build of 15.2mmbbl reported for September, taking OECD oil inventory well above average. A further preliminary build of 5.5mmbbl, also strongly counter-seasonal, is indicated for October. OECD crude inventory rose from the bottom of the five-year range at the start of the year to through the top of it by September.