While the IEA’s latest forecast continues to imply a softening in supply/demand balances for 1Q14, it has raised its demand forecasts again. Product inventories look particularly tight, despite apparent excess oil supply of 0.4mmb/d for 2013, and OPEC production fell for the fourth month running. In our view, that combination, together with the current robustness in Brent, suggests that a surge in OPEC production might be a necessary precursor to a more sustained fall in the Brent price towards the USD 100/bbl level we forecast for 2014. While that is possible if Libya, Iran and Iraq ramp up as per their claims, that looks more like a risk later rather than sooner into 2014, we believe. In our view, there is a potential parallel with events in 4Q12 when OPEC production cuts set up 1Q13 for robust pricing.
The IEA increased its demand forecasts again, raising its forecast for 2013 by 130kb/d to 91.2mmb/d. That had a knock on impact on its 2014 forecast, which increased 230kb/d to 92.4mmb/d. The IEA has now increased its demand forecast for 2014 by 0.4mmb/d since it first published its detailed outlook for 2014 in July.
Non-OPEC production, including OPEC NGLs, surged 470kb/d MoM to 56.2mmb/d in November, and up 1.9mmb/d YoY. FY13 non-OPEC production is on track for the largest YoY gain in percentage terms since 2002, at +2.6%. The IEA kept its forecast for non-OPEC production essentially unchanged for 2014 at 56.5mmb/d, up 1.7mmb/d YoY (+3.1%).
Primarily driven by the increase in the global demand estimate for 2014, the IEA increased its estimate for the unadjusted call on OPEC crude in 2014 to 29.3mmb/d, down 0.7mmb/d YoY.
The IEA put OPEC crude production in November at 29.73mmb/d, down 160kb/d MoM, which represented the fourth MoM drop. Disruption in Libya accounted for the largest MoM drop by member country.
While OECD oil inventory fell less than normal in October, there is a growing contrast between crude and feedstock inventory, which is high, and product inventory, which is low, particularly for middle distillates. That has been exacerbated by the refinery maintenance season, which is now largely over.