International Energy Agency Commentary: "Looking for balance in the oil market"
From the IEA, Sept. 20:
There is more than one way to look at oil-market balances. The IEA
uses a straightforward approach: supply minus demand, which we report in
the monthly Oil Market Report
as “Total stock changes and Miscellaneous.” Part of the calculation can
be easily explained by changes in OECD stocks, floating storage and oil
in transit. The remaining “miscellaneous to balance” is less clear.
This element, which implies unreported non-OECD stock changes, has come
under scrutiny recently particularly as Chinese crude-oil balances have
risen to unprecedented levels.
The following commentary expands on the analysis we provided in the September issue of the Oil Market Report, where
we took a close look at our “miscellaneous to balance” and drew a
distinction between crude oil and product balances to have a clearer
view of oil market developments.
The world oil market appears to have returned to balance this year,
thanks to a substantial stock draw in the second quarter. As global
demand exceeded supply, our balances in 2Q17 implied a 0.9 million
barrels a day (mb/d) decline in inventories, the first draw since 4Q13.
Somewhat counter-intuitively, the price of Brent was $4/bbl below the
first quarter.
In 2Q17, refined product markets drew nearly 1 mb/d of stocks, as
refining activity lagged demand growth. The OECD refined product stocks
drew by 0.3 mb/d, implying a 0.6 mb/d draw from non-OECD countries.
There is no comprehensive non-OECD stocks data to confirm this, however
non-OECD total demand grew by 1.1 mb/d year-on-year in 2Q17 while
refining throughput was flat. A 0.6 mb/d draw was close to the 0.5 mb/d
implied build in 1Q17, so the stock draw would have been technically
possible.
Forecasts of refinery runs and demand for 3Q17 and 4Q17 imply
continued refined product stock draws. Even in 3Q17, when global
headline oil balances show an oversupply of 0.4 mb/d, refined products
are forecast to draw by a counter-seasonal 0.4 mb/d, in part due to the
hurricane outages in the US Gulf Coast. The draw accelerates in 4Q17 and
is double the size of our headline total oil balances....MUCH MORE, leading to the penultimate comment:
...In our view, the Chinese crude balance is price dependent. While it
obviously contributed to the market equilibrium, it would be illogical
for us to incorporate an assumption of Chinese implied stock builds in
our forward-looking balances....
