IEA: Global Oil Demand Slowing Faster Than Predicted, Glut To Last Well Into 2017

The IEA predicts that momentum in 2017 will ease to 1.2 million barrels per day

One day after the Organization of the Petroleum Exporting Countries (OPEC) released a report stating that global demand for oil will be lower than expected in 2017, the International Energy Agency's Oil Market Report for September states essentially the same thing: that global demand is slowing at a faster pace than predicted.

The IEA predicts that momentum in 2017 will ease to 1.2 million barrels per day (bpd) compared to 1.3 million bpd for 2016 – which itself was a downgrade of 0.1 million bpd on the IEA's previous forecast due to "a more pronounced 3Q16 slowdown."

The IEA states that next year's predictions are due to "underlying macroeconomic conditions" remaining "uncertain".

Also in line with the OPEC report, the IEA calculates that "non-OPEC supply is expected to return to growth in 2017 (plus 380,000 bpd) following an anticipated 840,000 bpd decline this year."

The agency paints a gloomy portrait of market conditions this year: in addition to the third quarter slowdown, it notes that "the anaemic outlook for refining throughput extends further amid downward revisions to our 2H16 forecast.

"Refinery runs in 2016 are set to grow at the lowest rate in a decade."

Plus, Organization for Economic Cooperation and Development (OECD) total inventories built by 32.5 million barrels in July to a record of 3.111 billion barrels, according to the report: "As refinery activities reached a summer peak, crude oil inventories refused to decline until an exceptional storm-related draw hit the US in late August."

The report prompted Eugen Weinberg, head of commodities strategy for Commerzbank, to remark, "It seems the situation has deteriorated strongly in the eyes of OPEC as well as the IEA ... that we are in the third quarter of 2016 and we won't see the 'balancing-out' over the next six months is definitely a major change."

Julian Lee, oil strategist for Bloomberg First Word, was more outspoken: he told Bloomberg that the IEA and OPEC reports "put the nail in the coffin of this idea that the market is rebalancing on its own."

Matthew Parry, senior oil analyst for the IEA, told Bloomberg television that "in the third quarter we saw much sharper pulldowns in China, in Europe, and even India coming off a little bit; we're still predicting a mild uptick in the fourth quarter, but overall that means we're trimming our 2016 growth figures by 0.1 million barrels per day – and in a market where you've got record OPEC supplies, this is quite significant."

Still, Perry stresses that demand growth will continue, albeit lower than expected, "for the next five years" at least, partly due to "lots of poor countries where they're buying vehicles and will drive those vehicles" – a reference to the numerous expanding middle-class economies emerging from non OECD countries.

OPEC's September report shows demand down 530,000 bpd in 2017 and average surplus of 760,000 bpd.