IEA expects large 4Q draw in oil stocks

The IEA expects a "significant" draw in fourth quarter oil stocks, but said that a recent rise in Covid-19 cases could stall demand growth.

Global supply and demand estimates imply a 4mn b/d stock decline in the final three months of this year, the IEA said today in its latest Oil Market Report (OMR). While a large change, the IEA noted that it is from record high levels, and said that the Opec+ plan to ease supply cuts from January means there is "limited headroom for the market to absorb extra supply in the next few months."

The IEA also warned of a fragile outlook.

"The trajectory for Covid-19 infections is strongly upwards in many countries and governments are tightening restrictions on the movements of their citizens. This surely raises doubts about the robustness of the anticipated economic recovery and thus the prospects for oil demand growth," it said.

The IEA's preliminary data show global crude inventories began to fall in June, when many countries began to ease lockdown restrictions, and have continued on that path since. OECD industry crude stocks drew in August by 25.1mn bl to 1.2bn bl. Crude inventories in OECD Americas fell by 18.4mn bl on the month to 658mn, because of lower imports and the effect Hurricane Laura had on production. Preliminary data for September show US crude inventories fell by a larger-than-usual 6.5mn bl on the month.

The IEA's demand estimates for 2020 are unchanged from last month's OMR at 91.7mn b/d, down by 8.4mn b/d from 2019. It expects higher demand in the fourth quarter to offset a 140,000 b/d decline in the third-quarter caused by weakness in the US, Mexico and India. The IEA expects oil consumption to rise by 1.7mn b/d by December from September, helped by gains in refined product markets.

Its demand estimates for 2021 are unchanged at 97.2mn b/d, up by 5.5mn b/d on the year.

On the supply side, the IEA expects 92mn b/d in the fourth quarter, up by 700,000 b/d from the prior three months. It sees US output declining by 160,000 b/d on the quarter partly because of precautionary storm shut-ins, while Saudi Arabia and Russia add over 300,000 b/d between them. It said there is the potential for sustained increase in production from Libya if the latest ceasefire holds, and assumes an increase in production there to 700,000 b/d in December from 300,000 b/d currently. Libya is exempt from the Opec+ production quotas.

The IEA's call-on-Opec crude for 2020 is down by 100,000 b/d from last month's projections at 23.4mn b/d. Its non-Opec supply estimate for the year is 63.1mn b/d.

By Rowena Edwards