IEA Monthly Report: Global Oil Inventory Overhang Removed

Tuesday 16:00 Beijing time, the IEA released a relatively new monthly crude oil market report. Monthly data showed that global oil demand increased by 3.2 MMbpd in June; Oil supply increased by 1.1 million b/d/solstice 95.6 million b/d, with the monthly report forecasting that global oil demand will return to pre-COVID-19 levels by the end of 2022.

After the release of the monthly report, two oil prices rose slightly, but the overall fluctuation is big.

The content of the new monthly report

The IEA suggested that the oil market was likely to remain volatile until there was clarity on the OPEC + production policy. High oil prices could fuel inflation hurt a fragile economic recovery. The IEA said that unless OPEC + increased production, the oil market would tighten a lot.

On the supply side, the monthly report showed OPEC + crude oil production increased by 450,000 b/d in June. The IEA called on OPEC to increase production by 1.1 million b/d to 43.4 million b/d in 2022 2021 levels. The IEA raised its forecast for non-OPEC supply growth in 2021 by 60,000 b/d/solstice 770,000 b/d, but left its forecast for 2022 unchanged at an increase of 1.6 million b/d.

However, if the Opec + impasse continues, the oil market will be significantly tighter, with production quotas remaining at July levels.

On the demand side, the Monthly Report indicated that global oil demand will increase by 5.4 million b/d in 2021, in line with expectations; Global oil demand will increase by 3 million b/d in 2022, slightly less than the 3.1 million b/d forecast. The IEA's monthly report said economic growth would boost oil demand for the rest of the year.

On the inventory front, the monthly report indicated that the global oil inventory glut that had built up over the past year has been eliminated. Crude oil inventories in the third quarter of 2021 are likely to show their steepest decline in at least a decade, according to preliminary data.

Crude oil in Asian markets

The fast-spreading Delta mutant strain is spreading across undervaccinated Southeast Asia, limiting work travel in turn overshadowing the recovery in energy demand in the wider region.

FGE, a global energy consultancy, expects Indonesia's demand for motor fuel to fall 8 per cent in the third quarter May, Malaysia's by 17 per cent.

PeterLee, senior oil gas analyst at FitchSolutions, said:

"Conditions continue to be negative for fuel consumption growth this is affecting margins."

Indonesia, Malaysia Australia together account for 17 per cent of Asia-Pacific petrol demand about 14 per cent of diesel consumption, he said.

According to the more recent data the General Administration of Customs, China imported 40.135 million tons of crude oil in June, compared with 40.97 million tons in May. China's crude oil imports in June fell to the lowest level since 2021, according to foreign media statistics.

Crude oil outlook

Earlier this month, OPEC + failed to reach an agreement on an August output increase could take up to six weeks to reach a final agreement after it takes time for OPEC + to review issues related to raising baseline production, said ChristianMalek, an analyst at JPMorgan.

He said:

"We expect Saudi Arabia to eventually lead the OPEC + deal, but there is no tail risk to higher prices."

Without additional crude supplies, inventories in the world's major oil consuming countries will draw down in the second half of the year, possibly below the OPEC + five-year average, gradually raise prices.

Edmorse, Citi's head of global commodities research, also said that while OPEC+ will find a way to reach a production agreement, it will miss August, the month when demand growth is highest this year. Without an increase in OPEC+ production, the market will be "very tight" prices are expected to climb to $85 / BBL soon. Global oil demand is expected to be higher next month than it was in August 2019, with China the US leading the way.

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Source: China Energy Network