Commodities Buzz: Global Crude Oil Stocks Are At Multi-year Lows Says IEA

12 Feb 2022 , 12:21 PM

The International Energy Agency (IEA) noted in its latest monthly report that the global oil supply rose by 560 kb/d to 98.7 mb/d in January, but the uptrend was slowed by a chronic OPEC+ under-performance versus targets that has taken 300 mb of oil off the market since the start of 2021. If OPEC+ cuts are fully unwound, world oil output could rise by 6.3 mb/d in 2022. That would erode effective spare capacity, which could fall from 5.1 mb/d to 2.5 mb/d by year-end. A further 1.3 mb/d of Iranian crude supply could gradually be brought to market should sanctions be lifted.

A reassessment of historical data has resulted in a significant upgrade to IEAs oil demand estimates. While the revisions lift baseline demand – primarily for Saudi Arabia (in LPG use) and China (in the petrochemical sector) – by nearly 800 kb/d, growth rates are largely unchanged. World oil demand is set to expand by 3.2 mb/d this year, to reach 100.6 mb/d, as restrictions to contain the spread of Covid ease.

The global refining industry has underperformed relative to demand for the past six quarters and this is set to continue for most of 2022. The 3.8 mb/d forecast increase in throughputs this year lags behind demand growth even as 4Q22 runs are forecast to surpass pre-pandemic levels. Further upside is capped by closures and higher energy costs affecting refinery margins.

OECD industry oil stocks declined by a steep 60 mb in December, led by large draws in middle distillates across all regions. At 2 680 mb, oil inventories were 355 mb lower than a year ago and at their lowest in seven years. Stocks covered 59.6 days of forward demand, a decrease of 0.9 days from a month earlier and 3.2 days below the historical average. Preliminary data for January show OECD industry stocks falling by another 13.5 mb.

IEA noted that chronic underperformance by OPEC+ in meeting its output targets and rising geopolitical tensions have propelled oil prices higher. Benchmark crude prices rose by more than 15% in January to cross the $90/bbl threshold for the first time in more than seven years. Global oil stocks at multi-year lows and dwindling OPEC+ spare capacity have left the market with only a small cushion.

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