Commodities | Jul 14 2011
– Oil market tighter than previously projected
– Helps explain IEA release of strategic reserves
– Market to stay tight, global stocks expected to fall through 2012
By Chris Shaw
While the recent strategic stock release by the International Energy Agency (IEA) was questioned in some quarters, Barclays Capital sees some additional justification for the move given the oil market in 2011 is far tighter than previously projected based on recent data.
A month ago, the IEA had estimated the global oil stock draw for 1Q11 was around 0.1 million barrels per day, while the average call on OPEC and stocks for the year as a whole was estimated to come in at around 30.1 million barrels per day.
But over the last month the IEA has revised up both the historic draw and the future call on OPEC and stocks. The latter is now forecast at 30.6 million barrels per day for 2011 as a whole, while the global stock draw for 1Q11 was revised to 0.5 million barrels per day.
The tightening appears to have continued in the June quarter. Barclays notes the IEA estimates for global stock draw for the period stand at 0.6 million barrels per day, this in a quarter that traditionally sees seasonal stock builds. The result, Barclays notes, is global inventories are estimated to have declined by around 100 million barrels in the first half of 2011.
For the rest of 2011 the IEA has also lifted forecasts for the call on OPEC crude and stocks by 0.6 million barrels per day in 3Q11 and by 0.5 million barrels per day in 4Q11. Barclays estimates this equates to a further 100 million barrels per day being required to balance the market relative to the IEA's previous forecast.
The oil market being significantly tighter than had previously been assumed does go some way to explaining the IEA strategic stock release. But according to Barclays, to say the specific price levels were not the rationale for the release is not being totally open, as the move was clearly an attempt to reduce the oil price. The timing of the move can also be questioned, as the latest figures indicate a release of strategic reserves in March would have been justified.
Barclays expects the release will offer some help in terms of limiting prices, though a key is the decision not significantly reducing the credibility and market effectiveness of any future strategic moves. Barclays takes the view this has in fact occurred, as evidenced by the market's reaction to the release.
Looking to 2012, with both the IEA and the OPEC Secretariat updating their expectations it means global oil demand growth forecasts for next year range from 1.32 to 1.58 million barrels per day. Most of the increase in demand is expected to come from non-OECD nations such as China, India, Saudi Arabia and Brazil.
OECD prospects see something of a division in views, the US Energy Information Agency (EIA) and OPEC Secretariat expecting small year-on-year growth of around 0.04 million barrels per day against expectations of negative growth from both Barclays and the IEA. Both of the latter estimates are based on the view higher prices and increased efficiency will contribute to a decline.
Non-OPEC supply growth expectations cover a wide range between 0.44 and 0.95 million barrels per day, but Barclays continues to expect demand growth will continue to outpace the momentum in non-OPEC supply increases next year.
This is enough for Barclays to forecast a decline in global oil stocks in 2012 of 0.5 million barrels per day, following an expected decline of 0.9 million barrels per day in 2011. Barclays forecasts West Texas Intermediate prices of US$100 per barrel this year and US$110 per barrel in 2012, while for Brent crude respective forecasts stand at US$112 and US$115 per barrel.
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