IEA Outlook Dampens the Oil Recovery Party, But Not So Fast...

The IEA recently released its monthly Oil Market Report, which pointed to a number of bearish signals that could dampen oil's recovery. Specifically, the IEA noted that global growth in crude oil demand will slow down faster than previously expected. The agency now sees growth at 1.3 million bpd for 2016, which represents a downward revision by 100,000 bpd from its previous estimate. Further, the IEA noted that demand growth will continue to decrease to 1.2 million bpd in 2017, citing a very uncertain macroeconomic environment. Exacerbating the demand side problem is OPEC nations (mainly Saudi Arabia, UAE and Kuwait) continuing to produce at record levels, which is increasing supply. Notably, the August daily average of OPEC was 930,000 bpd above last year’s (on an annual basis). Slightly offsetting increased OPEC production is a continual decline in non-OPEC production, with August output inching down by 300,000 bpd.

​Overall, the IEA sees no chance of the market returning to a balance, predicting the glut will persist at least until June 2017. As with any oil market predictions, observers should take the IEA's latest doom and gloom report with a grain of salt. It's worth noting that over the years, the IEA has taken a lot of flak from critics with 20/20 hindsight about fairly large deviations between forecasted and actual numbers. Notably, prior IEA predictions suggest that the agency is unable to foresee events that deviate strongly from the norm such as peak conventional oil, rapid shifts in global trade flows and unexpected energy policy developments. So, when it  comes to the IEA predicting oil demand and supply growth, market observers should exercise caution when relying on such predictions.