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EIA Lowers World Oil Demand Forecast Again

The US Energy Information Administration…

Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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Oil Spikes After EIA Reports Surprise Draw

Fifty-two years to the day after The Beach Boys released ‘I Get Around’, and the crude complex is sympatico with this notion. As the market tries to weigh up supply losses, the return of said supply losses, and weekly inventory changes, prices have been bopping betwixt gains and losses thus far today. Hark, here are five things to consider in the oil market today:

1) Yesterday we discussed how Nigeria’s pipelines have been punctured 3,153 times in the last year, and how violence in Nigeria’s oil-rich Niger Delta is on the rise. Today Shell has declared a force majeure on exports from the Bonny Light pipeline due to a leak (sabotage not being blamed thus far), hot on the heels of a Chevron oil platform being attacked last week by a new militant group, the ‘Niger Delta Avengers’.

Force majeure is now in place on three Nigerian blends – Bonny Light, Escravos, and Forcados. According to our ClipperData, these three blends account for ~30 percent of Nigerians crude oil exports, averaging over 600,000 bpd in the last year or so. Despite Nigeria exporting over twenty blends of crude, these three are some of the most important in terms of volume: Related: Petrobras Offloads $1.4B In Assets Amidst Political Turmoil

2) The EIA released its monthly Short Term Energy Outlook yesterday, and there are a number of takeaways. It has raised its U.S. production forecast compared to last month for 2017: it now sees production at 8.2 million bpd, an upward revision of 100,000 bpd. It sees U.S. production at 9 million bpd on the nose for April – some 700,000 bpd lower than the level seen in April of last year.

It sees non-OPEC production dropping 0.7 million bpd this year and 0.2 million bpd next year (h/t falling U.S. production), while it sees OPEC production up 0.9 million bpd this year, and up an additional 0.7 million bpd in 2017 (h/t Iran). Related: Turkey, At Energy Crossroads, Sliding Towards Authoritarianism

EIA still sees global rebalancing delayed until next year, with the first inventory draw coming in Q3 2017. It expects inventory builds this year to average 1 million bpd, and +0.2 million bpd next year. While this view was in line with consensus earlier in the year, initial signs of rebalancing have many forecasters expecting inventory draws later in the year, now making the EIA an outlier.

3) This expectation from the EIA for ongoing stockbuilds comes amid an upward revision to their demand expectations. It now pegs oil demand growth at 1.4 million bpd for this year (up 0.3 million bpd from last month), and 1.5 million bpd for 2017 (up 0.2 million bpd from last month). These are considerably hefty upward revisions. Really, really hefty. The agency attributes the increase in large part to higher Chinese and Indian demand. Related: Libya’s Oil Exports Could To Go To 0 bpd Within One Month

4) We’ve had a few global bits and bobs on the economic data front; industrial production in old Blighty (the UK) has come in worse than expected (at +0.2 percent MoM, -0.2 percent YoY), while Brazilian retail sales are similar to much of the country’s data – pretty darn poor. Retail sales fell -0.9 MoM in March, down 5.7 percent YoY. The key data of note in the U.S. is oil-centric in nature, with weekly EIA inventories. A modest build was expected for crude stocks, and a draw to the products, but the EIA surprised oil markets by completely contradicting last night’s API data.

5) Finally, wind and solar capacity is expected to grow by 68 percent through 2018, with investments being made from an unlikely source: Big Oil. Exxon, Total and Enbridge have all been making investments in renewables recently, as clean energy becomes an increasingly more viable option.

Exxon is dabbling in carbon capture at power plants, Total has just bought the battery maker Saft Groupe this week (to compliment its majority stake in SunPower Corp.), while Enbridge is buying up offshore wind farms to double its low-carbon generating capacity. As costs drop, momentum builds; global solar capacity is projected to double by the end of 2018, with wind capacity increasing by 50 percent.

(Click to enlarge)

By Matt Smith

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