Bearish IEA Report Misinterpreted, Says Analyst

by Ship & Bunker News Team
Wednesday September 14, 2016

The International Energy Agency's new Oil Market Report showing global demand slowing at a faster pace than predicted caused considerable consternation among market players on Tuesday, but one expert warns that the wrong conclusions are being drawn from the IEA's figures.

Writing in Forbes, analyst Robert Rapier, who is also a chemical engineer and author, argues that even though 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, that still equals growth.

He writes, "demand this year is expected to be 1.3 million barrels per day (bpd) higher than it was a year ago; next year it is still expected to be 1.2 million bpd higher than it is this year.

"So, demand isn't weakening, it's growing."

Rapier adds that even if the growth this year is at only 1.3 million bpd, "that's above the long-term average growth rate of the past three decades: in the 32 years since 1984, global crude oil demand has increased by 36 million bpd – an average annual increase of 1.1 million bpd per year."

Only in the context of recent history can demand growth be forecast as weaker than normal, according to Rapier, who points out that the average annual increase since 2010 has been well above the historical average at more than 1.5 million bpd.

Rapier echoes the sentiments of Matthew Parry, senior oil analyst for the IEA, who told Bloomberg television on Tuesday that growth for the next five years will be fueled partly by people in emerging economies buying cars and driving them: "Don't expect to see [electric vehicles] actually reduce demand for oil any time soon."

Still, Rapier does not disregard the very real problems of a global glut and a discrepancy between the time the IEA and the Organization of the Petroleum Exporting Countries originally thought it would take to rebalance the market and their revised prediction of late 2017 and beyond for that to happen.

He concludes, "The reality is that oil production growth is now lagging oil demand growth, and that's a prescription for bringing the oil markets back into balance; but given the crude oil inventory overhang that developed over the past two years, it's going to take some time to work inventories back down into a normal range."

The IEA and OPEC aren't alone in reassessing earlier, rosier predictions of a market rebalance: earlier this year, banks surveyed by The Wall Street Journal that thought Brent would climb to $70 per barrel in 2016 now say it won't happen until 2018 - meaning a true market recovery will take at least that long to happen.