With the rise in market volatility, oil prices already took a lot of hit this year and as per the latest report from the International Energy Agency (IEA), oil demand in 2017 is now going to be weaker than earlier estimations. A slowdown in demand from 1.4 million barrels per day in 2016 to 1.2 million barrels per day in 2017 has been estimated as per the latest report. This comes at the back of the softness in outlook for global economy. The key things hitting the crude oil prices that eased to around $45 bbl in August, as discussed by IEA entail the following:
Declining demand growth: One of the key reasons for the oil price drop has been the decline in demand growth from the US, China and India as per the data for the second quarter of the year. This demand drop has been hitting the oil prices since June 2016.
World Oil Demand (Source: IEA)
Overhang of stocks: The IEA report mentioned that the massive overhang of stocks has kept a lid on prices with both newly produced and stored crude competing for market share in an increasingly volatile refinery margin environment. Global oil supply has risen by 800,000 barrels per day in July owing to the oil overproduction from OPEC nations particularly. There has been an increase of 150,000 barrels per day to 33.4m barrels per day in OPEC’s crude oil output for July. Further, the non-OPEC oil supplies also rebounded a bit with Canada contributing the most with production resuming to normal after getting impacted by huge wildfires. The total output was still 215,000 barrels per day lower than previous year based on decline in supply from non-OPECs. There are expectations that non-OPEC production would eventually rise by 300,000 barrels per day in 2017 post dropping by 900,000 barrels per day in 2016. Many experts have commented that US stockpiles have continually been on the upsurge, and the demand/supply imbalance which is taking a toll, is unlikely to take a path back to reversal in the near future.
Shift in the surplus: IEA further commented that surplus in industrialised nations are now increasingly shifting from crude oil into refined products based on data of past few months while commercial stocks have swelled by 5.7 million barrels. Global refinery throughput in the third quarter has been said to rise by 2.2 million barrels per day from a weak second quarter to a record 80.6 million barrels per day.
With the release of the IEA report, oil prices already suffered a blow on August 11, 2016.