Commodities | Apr 16 2009
By Chris Shaw
Given the global oil market is now well supplied the key for prices remains demand and, as Barclays Capital points out, in recent weeks an interesting split between various demand side estimates has emerged with the International Energy Agency (IEA) emerging as significantly more bearish than other forecasters.
In millions of barrels per day (mb/d) terms the IEA is now forecasting a decline in demand of more than 1mb/d more than market consensus, estimating demand will decline by around 2.4mb/d this year compared to Barclays estimate of a 1.4mb/d decline, the OPEC Secretariat estimate of a 1.37mb/d decline and the US Energy Information Agency (EIA) estimate of a 1.36mb/d fall.
So why is the IEA estimate so much lower? Barclays Capital believes the answer is poor calibration, as for too long the IEA was holding to too high a global GDP forecast and so backed itself into something of a corner when it eventually bit the bullet and adjusted its growth numbers.
As evidence of this Barclays notes the IEA had until recently been forecasting global GDP to grow by 0.5% this year. It has now lowered this forecast to a decline of 1.4%, which brings the IEA roughly in line with consensus numbers. But allowing for such a GDP outcome doesn’t support a 2.4mb/d decline in oil demand according to Barclays, as growth would have to be even weaker, say around 3.0% negative, for such a decline in demand to be close to the mark.
Using quarterly numbers offers a good insight into what Barclays is suggesting, as it notes on 2007 numbers (2008 figures are excluded given the wild swings in the market last year) compared to this year the IEA is forecasting quarter-on-quarter declines in demand of 2.4mb/d in the first quarter, 2.2mb/d in the second quarter and 2.3mb/d in the third quarter.
But in the fourth quarter the forecast is for a 3.7mb/d fall, a scale of decline Barclays suggests is difficult to justify given other forecasts such as for GDP. The June quarter should provide a good insight into whether or not the IEA will be close to the mark as Barclays expects a year-on-year demand decline for the period of 1.9mb/d, which is close to consensus, whereas the IEA is forecasting closer to a 3.0mb/d fall.
Barclays suggests such a forecast assumes far too pessimistic an outcome with respect to demand in the US, China and Europe in particular, but also implies significant weakness in Japanese demand. Barclays sees another problem here as while February demand from Japan was weak, some of this can be ascribed to a warm winter and so shouldn’t be used to interpret a change in Japanese demand going forward.
The other point Barclays makes is with oil demand having fallen for some months comparables will start to get easier, meaning over the course of 2009 the pace of demand decline will start to taper off. This further supports its view the new IEA demand numbers are too bearish.