IEA feeds the bulls, but doubts remain

The IEA’s upward revision of its oil demand forecast by 120,000 barrels per day came as welcome news to markets, supporting the $71+ price levels achieved in the past few days. It was certainly more substantial than the US energy department’s upward revision of a measly 5,000 barrels per day earlier this week. But the IEA maintains that this is not necessarily a sign of recovery.

The revision, it says, is mostly due to stronger than expected demand in petrochemical feedstocks in OECD countries:

However, the rebound of petrochemical activity, which reached historical lows in early 2009, is possibly due to restocking. By contrast, demand for transportation fuels remains very weak, suggesting that other economic sectors (notably services) are still constrained. As such, revisions have not been carried forward until more solid evidence emerges.

(Emphasis ours).

Further along, the report concedes that lower than expected falls in Japan could be due to restocking, but also ‘possibly renewed exports to China’. In China, growth in petrochemical demand could point to a “partial industrial revival”; but an increase in gasoline demand could have been related to stockpiling ahead of an expected price increase in April – which actually was not introduced until June, so it may continue to show up in data from May. The report sounded a very cautiously optimistic note about China, increasing its forecast by 40,000 b/d.

Non-OECD demand was unchanged, the IEA said, as improvements in Africa and Asia were offset by lower than expected demand in the Middle East.

Separately, some good news for non-Opec production, which fell sharply last year.

Non‐OPEC supply is revised up by 170 kb/d for 2009 on higher‐than‐expected growth from new
Russian fields, more robust, albeit declining, North Sea production and stronger crude output in
Colombia. Year‐on‐year, non‐OPEC supply is now expected to decline by a lesser 100 kb/d, from
50.6 mb/d in 2008 to 50.5 mb/d in 2009.

Related links:

IEA sees recovery in oil demand (FT, 11/06/09)
Tanaka on demand destruction and long-term supply (FT Energy Source, 05/06/09)
Clouseau-esque market-moving commentary, IEA edition (FT Alphaville, 14/05/09)

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