Oil: EIA’s short term energy outlook is bearish – Standard Chartered
Analysts at Standard Chartered points out that last week was a heavy one for global oil balance forecasts, with the three main monthly reports published on successive days but the Energy Information Administration (EIA) Short Term Energy Outlook was the first to be released, and it made the greatest changes.
Key Quotes
“The EIA reduced its Q1-2017 global demand forecast by 436kb/d, primarily due to a 312kb/d downward revision of India’s oil demand. It also increased its demand forecasts for the next three quarters, leaving its average 2017 demand forecast just 6kb/d lower at 98.159mb/d. The EIA increased its forecasts for non-OPEC supply, with 2017 growth revised up to 0.62mb/d from 0.54mb/d and 2018 growth revised up to 1.17mb/d from 0.99mb/d. The largest upward revisions were for Brazil (111kb/d in 2017 and 179kb/d in 2018) and the US (13kb/d in 2017 and 132kb/d in 2018). We think the overall tenor of the EIA report was bearish, particularly in its revision of the global balance in Q1-2017 from an inventory draw of 176kb/d to a build of 316kb/d.”
“The OPEC Secretariat Monthly Oil Market Report was more positive than the EIA report, but the changes it made were relatively slight. Global oil demand forecast were unchanged in all quarters apart from a 50kb/d upward revision for Q1-2017. The US accounts for nearly all non-OPEC supply growth in 2017 in the OPEC forecasts; US supply growth was revised up 200kb/d to 540kb/d, while other non-OPEC growth was revised down 20kb/d to 40kb/d. Like the EIA, OPEC thinks the market was in overall surplus in Q1, estimating an implied inventory build of 430kb/d.”
“The last of the trio of reports to be released was the International Energy Agency (IEA) Oil Market Report. This differs from the EIA and OPEC versions in that the IEA show an implied inventory draw in Q1-2017, albeit a modest one of 240kb/d. However, in an editorial the IEA suggested that inventories may have built during that quarter, based on a partial set of OECD data and a limited selection of available non-OECD indicators. The IEA made few significant changes to forecasts, revising 2017 demand growth down 40kb/d to 1.32mb/d while leaving non-OPEC supply growth unchanged at 0.49mb/d.”
“The three reports have broadly similar views of OPEC crude oil output in March. This was put at 32.0mb/d by the EIA, 31.7mb/d by the IEA and 31.9mb/d by the OPEC sample of secondary sources. Were OPEC output to remain at current levels, the three reports all imply that inventory draws would be significant in Q3, while they have mixed views on the implications for Q2. The EIA balances imply that inventory draws would be 0.3mb/d in Q2 and 1.2mb/d in Q3, the OPEC balances imply a 0.2mb/d build in Q2 and then a 1.2mb/d draw in Q3, and the IEA balances imply a 1.3mb/d draw in Q2 followed by a 1.4mb/d draw in Q3.”
“When OPEC cuts were first agreed, there was much media and analyst comment suggesting that they would be counteracted by increases in output from Nigeria and Libya, both of which were exempted from having output limits. Instead the reverse has happened, with output from the exempted countries falling in recent months. The IEA placed Libya’s March output at 0.61mb/d and Nigeria’s at a 30-year low of 1.31mb/d, a combined m/m fall of 200kb/d and a y/y fall of 100kb/d.”
“The latest Baker-Hughes weekly data shows the 13th consecutive rise in US oil drilling activity. The oil rig count rose 11 to a two-year high of 683 as of 13 April. The two main basins in the Permian accounted for much of the latest increase, with Delaware basin drilling rising seven to 163 rigs, while Midland basin drilling rose five to 140 rigs.”
“Activity was a little more muted in Oklahoma, with the Sooner Trend Anadarko Canadian Kingfisher (STACK) rig count unchanged at 51 and the South Central Oklahoma Oil Province (SCOOP) count higher by one at 30. There has been a limited recovery in vertical drilling since the start of this year, with activity higher by 14 at 111 rigs. However this is dwarfed by the 148 increase in shale oil horizontal drilling to 572 rigs. Of this increase, 42 have been in the Delaware basin, 36 in Eagle Ford, 26 in the Midland basin, 14 in SCOOP and 13 in STACK. We would be surprised if this geographical share of drilling changed significantly over the next few months.”