IEA sees oil inventories building again

Global oil inventories are rising and will increase further in the first half of next year should there be no change in Opec strategy, the IEA said today. But the increase in stocks should be welcomed in a volatile market, it said.

Commercial oil stocks in developed economies increased counter-seasonally by 12.1mn bl in September to 2.875bn bl, according to the IEA's latest Oil Market Report (OMR). Stocks increased by 630,000 b/d in the third quarter, the biggest rise since 2015, it said, and there is an implied build of 700,000 b/d in the fourth quarter. OECD inventories are likely to exceed the five-year average when October data is finalised, for the first time since March.

For the first half of 2019 the IEA said it sees an implied stock build of 2mn b/d, based on its outlook for non-Opec production and global demand, and assuming no change in Opec production.

"We have already seen suggestions from leading producers that supply could be cut soon if customers, seeing ample supply, rising stocks, and slumping refining margins, request lower volumes," the IEA said. "Although the oil market appears to be more relaxed than it was a few weeks ago, and there might be a sense of 'mission accomplished' that producers have met the challenge of replacing lost barrels, such is the volatility of events that rising stocks should be welcomed as a form of insurance, rather than a threat."

Opec said yesterday that supply and demand forecasts for next year point to a "widening excess supply in the market". The Opec and non-Opec Joint Ministerial Monitoring Committee (JMMC) decided on 11 November to review strategy for next year, including looking at potential new production cuts.

The IEA kept its global demand growth projections little changed, at 1.3mn b/d this year and 1.4mn b/d in 2019.

"Oil demand is slowing in several non-OECD countries, as the impact of higher year-on-year prices is amplified by currency devaluations and slowing economic activity," the agency said.

The energy watchdog estimated global oil supplies were 2.6mn b/d higher in October than a year ago, as "record output from Saudi Arabia, Russia and the US more than offsets declines from Iran and Venezuela".

The IEA puts non-Opec output growth at 2.4mn b/d in 2018 and 1.9mn b/d in 2019. Its call-on-Opec crude stands at 31.3mn b/d next year, or 1.7mn b/d below current Opec output.