Reuters: World Oil Market Facing Product Glut: IEA

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http://www.cnbc.com/id/100809117

World Oil Market Facing Product Glut: IEA
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Published: Wednesday, 12 Jun 2013 | 5:12 AM ET

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The world is heading for a glut of refined products as new Asian and Middle East refineries increase oil processing in a move likely to force less advanced competitors in developed countries to close, the West's energy agency said on Wednesday.

The International Energy Agency said in its monthly report it expected 9.5 million barrels per day (bpd) of new crude distillation capacity, representing more than a 10th of global demand, to come on stream in 20132018, substantially more than the forecast increase in crude production capacity and global demand growth.

"While Europe's economic woes are taking a toll on demand, there are mounting signs that China's oil use, like its economy, may have shifted to a lower gear. Slower growth in demand than in runs could lead to product stock builds," the IEA said.

(Read More: Oil Demand Will Pick Up and We'll Satisfy It: OPEC)

The agency said changes would be already felt from the third quarter of 2013 as global refinery runs may rise by more than 2 million bpd on the back of increased processing by China, Saudi Arabia and Venezuela.

This spike in crude runs would exceed forecast product demand growth of 1.7 million bpd, the IEA said.


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Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas, expects the oil market to be "much tighter" in the second half of the year due to "multiple risks" on the supply side.
It also added global crude supply could struggle to keep up with refining demand because of seasonal maintenance to North Sea production, Sudan's struggle to resume production, the annual hurricane season in the U.S. Gulf and risks to Middle Eastern output due to the Syrian civil war.

Shorter-than-expected crude supply and large refining volumes would undermine refining margins.

"While that would normally prompt refiners to drop their throughputs, market participants may not be equally receptive to such price signals. New refining capacity would likely be the last to cut back on runs if refining economics turned south," the IEA said.

"On the other hand, older plants in mature markets, saddled with comparatively high costs, might feel the heat. That those plants should find it increasingly tough to compete is a widely anticipated outcome of the current downstream restructuring," the IEA added.

Iran Exports Soar in May

The agency made little change to its global demand and supply forecasts for this year saying demand would remain sluggish.
Demand growth is expected to gain momentum through the year, rising from a low of 215,000 bpd year-on-year in the second quarter of 2013 to 1.1 million bpd or 1.2 percent year-on-year by the fourth quarter as the economy strengthens.

Annual global oil consumption is forecast to expand by 785,000 bpd in 2013, to 90.6 million bpd, roughly unchanged since last month's report.

"Relatively sluggish macroeconomic conditions are expected to keep a lid on growth in 2013, with absolute declines still projected across much of the OECD," the IEA said.

(Read More: Global Carbon Emissions Hit Record High in 2012)
Chinese oil demand is now forecast to grow by 3.8 percent, down from 3.9 percent previously.

On the supply front, the IEA said OPEC crude oil supply rose in May by 135,000 bpd to 30.89 million bpd, a sevenmonth high, due to higher output from Saudi Arabia, Iran, the UAE and Kuwait and despite lower production from Iraq, Libya and Nigeria.

It said OPEC would need to produce only 29.8 million bpd in the second half of 2013 to balance the market.

Iranian output was largely unchanged in May at 2.68 million bpd, imports of Iranian oil saw a steep spike in May to 1.39 million bpd from 835,000 in April, the IEA said citing a rise in supplies to China to 715,000 bpd in May from 370,000 bpd in April.

"The steep month-on-month change, however, largely reflects congestion at Chinese ports at end-April, with discharge from ships delayed until early May," it said.

(Read More: Some Look to Norway as Model for US Oil Bounty)

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IEA lowers oil demand outlook

AAP AUGUST 12, 2014 7:15PM

Unsteady global economic growth is holding down oil demand and prices despite worries about conflict in key regions, the IEA says, lowering its demand forecasts.

"Despite armed conflict in Libya, Iraq and Ukraine, the oil market today looks better supplied than expected, with an oil glut even reported in the Atlantic basin," the International Energy Agency said.

Some of these conflict factors, which could be expected to raise tension and prices on the oil market, might even work in the opposite direction, the agency said.

Tit-for-tat trade sanctions affecting Russia over the crisis in eastern Ukraine could end up depressing growth of the Russian economy and demand for oil, the IEA said.

Libya, where some oil facilities had resumed activity despite a high level of disruption in the country, was reportedly having difficulty funding buyers for this renewed production on the market.

The IEA, the oil policy arm of the Organisation for Economic Cooperation and Development, cut back its forecast for the growth of demand of oil this year.

It said this was because consumption in the second quarter was weak and because the International Monetary Fund had lowered its forecast for global economic growth this year by 0.3 percentage points to 3.4 per cent.

Lower economic growth means an easing of demand for energy, including oil, and the IEA also lowered its forecast for oil demand in 2015.

But a central thrust of its report was that, so far, potential risks for the oil market from conflict and tension in Iraq, over Gaza, in Libya, and over Russia and eastern Ukraine was being more than countered by unspectacular growth of the global economy.

This was containing demand for oil and was therefore bearing down on prices.

"The global oil demand growth estimate for 2014 has been curtailed," since last month to show a gain of 1.0 million barrels a day, down from 1.2 mbd foreseen in last month's report, although the figures were skewed by adjustments of previous demand data.

Overall demand this year would be 92.7 mbd. In the second quarter of this year, the growth of demand of 700,000 barrels per day "fell to its lowest level since the first quarter of 2012."

Growth of demand would then pick up next year to 1.3 mbd on firmer economic growth, but the agency lowered the pace of this pick-up by 90,000 bd because of "lower forecasts for China, Russia and Japan".

However "global supply was up 230,000 bd in July to 93.0 mbd, with higher OPEC output offsetting slightly lower non-OPEC supply," the IEA said.