OPEC is very close to achieving its mission to draw oil inventories down to their five-year average, but the ongoing U.S.-China trade spat is a risk to oil demand growth expectations this year, the International Energy Agency (IEA) said in its Oil Market Report on Friday.
The Paris-based agency kept its global oil demand growth estimate unchanged from last month’s report—at 1.5 million bpd for this year.
“However, there is an element of risk to this outlook from the current tension on trade tariffs between China and the US,” the IEA noted.
The trade dispute is “introducing a downward risk to the forecast,” said the agency which sees oil demand growth possibly dropping by around 690,000 bpd if global economic growth were reduced by 1 percent on the back of widespread increase in trade tariffs.
“Oil demand would suffer the direct impact of lower bunker consumption and lower inland transportation of traded goods, reducing fuel oil and diesel use,” said the IEA.
On the supply side, the agency continues to expect non-OPEC growth unchanged at 1.8 million bpd, with the U.S. production growth also unchanged from the previous report, at 1.3 million bpd year on year. Yet, there is concern about takeaway bottlenecks in Midland, Texas and in Canada, and those could widen the discounts of local grades to the international benchmarks, according to the IEA.
OECD commercial stocks—OPEC’s current measure of the success of its production cut deal—dropped by 26 million barrels in February and were just 30 million barrels above the five-year average at end-February.
“The average could be reached by May, on the assumption of tight balances in 2Q18. Product stocks are already in deficit,” the IEA said.
“With markets expected to tighten, it is possible that when we publish OECD stocks data in the next month or two they will have reached or even fallen below the five-year average target. It is not for us to declare on behalf of the Vienna agreement countries that it is ‘mission accomplished’, but if our outlook is accurate, it certainly looks very much like it,” the agency said.
Recent reports have it that OPEC is considering ‘moving the goalposts’ on the deal, instead using seven or more years of average to measure the success of the cuts. Most proposals to change the current metric of assessing the success of the pact would shift the inventory goal further out in time.
By Tsvetana Paraskova for Oilprice.com
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