In its January Oil Market Report, the IEA increased its 2012 global oil demand estimate to 89.8mmbbl/d and its 2013 forecast to 90.8mmb/d, both up 0.2mmbbl/d from the December report. The increments come on the back of stronger than expected 4Q12 data, as demand for the quarter was hiked 0.7mmb/d. The IEA also factored in additional infrastructure spending in China in 2013, expected to bump up demand by 0.1mmb/d.
Non-OPEC supply figures for 2012 and 2013 were raised 0.1mmb/d. The ‘call on OPEC crude’ was therefore raised a net 0.1mmb/d in both years, to 30.3mmb/d for 2012 and 30.0mmb/d for 2013, falling 0.3mmb/d YoY.
Two consecutive months of inventory draws have lowered total OECD inventory in November, almost in line with the seasonal average. Preliminary data for December indicates another inventory draw. However, considering the weakness in OECD demand, inventory levels, and particularly crude inventory, appear comfortable. Crude inventory is at the top of the five-year range.
The IEA put OPEC’s December production at 30.64mmb/d, down more than 0.25mmb/d MoM on downwardly revised November production. There were production cuts in Saudi Arabia and Iraq, while Nigerian production picked up as it recovers from severe flooding. Iranian production was flat MoM.
Oil markets were oversupplied in 2012 by 1.1mmb/d, while despite the fall in OPEC production levels, 2013 is still set to be oversupplied, by 0.6mmb/d at the current level of output.
While the increase in demand forecast and continuing decline in OPEC production set a firmer tone to the market outlook, the projected call on OPEC crude remains down YoY for 2013 and current OPEC production levels remain well ahead of that call. In our view, that leaves crude price risks to the downside unless OPEC production falls further.