The Commodities Feed: IEA sees a tighter market

Energy

Oil prices received a boost yesterday, with ICE Brent settling almost 1.8% higher, following the release of the IEA’s latest oil market report. The agency estimates that global oil demand surged by 3.2MMbbls/d in June to 96.8MMbbls/d, while also warning that crude oil inventories could see their largest drawdowns in at least a decade over 3Q21, given the OPEC+ stalemate. The IEA left their demand growth estimate unchanged for 2021 at 5.4MMbbls/d, while revising 2022 demand growth down by 100Mbbls/d to 3MMbbls/d. However, the recent spread of Covid-19 in several countries is a downside risk. The call on OPEC+ supply is estimated at 42.8MMbbls/d in 3Q21 and 44.1MMbbls/d in 4Q21, which compares to June production of 40.9MMbbls/d. Clearly the IEA report was supportive, with it highlighting the potential for significant tightness in the market if OPEC+ does not increase supply.

The latest trade data from China was less supportive, with it showing that crude oil imports over the first 6 months of the year totalled 260.66mt (10.5MMbbls/d), down 3% YoY. Lower imports should not be too much of a surprise, with refiners preferring to draw down inventories they built up last year, rather than importing at higher price levels we have seen recently. Crude oil imports in June averaged 9.8MMbbls/d, up 1% MoM, but down 25% YoY. However, admittedly, June last year was a record month for oil imports, with them averaging 12.99MMbbls/d.

Overnight the API released latest inventory numbers, which showed that US crude oil inventories declined by 4.1MMbbls over the last week. If confirmed by the EIA later today, it would be the seventh consecutive week of inventories draws. Crude stocks at Cushing also continue to fall, with inventories at the WTI delivery hub declining by 1.59MMbbls. On the product side, API numbers showed that gasoline inventories declined by 1.54MMbbls/d, whilst distillate fuel oil inventories grew by 3.7MMbbls.