In its latest forecast, the IEA has upgraded global demand 0.1mmb/d for 2014 to 92.5mmb/d, on the back of stronger OECD demand, representing YoY growth of 1.3mmb/d (+1.4%). OECD oil inventory levels dropped sharply in November, down 53.6mmbbl MoM for the steepest monthly decline since December 2011, while preliminary data for December indicates an inventory draw in line with historical trends. In our view, rising OECD demand estimates and falling OECD inventory are supportive for the oil price. We believe that OPEC would be able to manage crude production to support Brent at USD 100/bbl (see Oil & Gas Price View - 2014 outlook, 2013 wrap, of 10 January) and reports from early in the year suggest that this might prove an easier, rather than a more difficult, process to achieve.
The IEA raised its demand forecasts on the back of strong OECD demand, particularly in the US. The IEA raised its 2013 demand estimate 0.1mmb/d, resulting in the first annual growth in OECD demand since 2010, and raised 2014 demand 0.2mmb/d to 45.9mmb/d. The OECD demand upgrades were checked by cuts in non-OECD demand estimates of 0.1mmb/d for both 2013 and 2014 on the back of weakness in Chinese demand.
Non-OPEC production declined 335kb/d to 55.99mmb/d in December, mainly on account of the seasonal downturn in global biofuel production. In 2013, non-OPEC production grew 2.3% (1.3mmb/d) YoY to 54.7mmb/d. For 2014, the IEA has cut its non-OPEC production forecast 0.1mmb/d to 56.4mmb/d (+3.1%, 1.7mmb/d YoY), driven by a downward reassessment of production from Kashagan.
The net impact of the forecast changes is to increase the ‘call on OPEC crude’ production for 2013 by 0.1mmb/d to 30.1mmb/d and for 2014 by 0.2mmb/d to 29.4mmb/d. Meanwhile, OPEC crude production in December was up 0.3mmb/d MoM to 29.82mmb/d on downwardly revised November production. Libyan production remained very low at 0.2mmb/d.
OECD oil inventory levels dropped sharply in November, down 53.6mmbbl MoM for the steepest monthly decline since December 2011, while preliminary data for December indicate another inventory draw. Product inventory appears tight, while crude inventories remain high, though that is largely a North American phenomenon.