Record oil glut stands at 3 billion barrels
Record oil glut stands at 3 billion barrels
“Stockpiles of oil at a record 3 billion barrels are providing world markets with a degree of comfort,” the IEA said in a monthly report, adding brimming stocks offer an unprecedented buffer against geopolitical shocks or unexpected supply disruptions.
Oil prices have more than halved in the past 18 months with supply bolstered by US shale oil output and OPEC’s refusal to cede market share.
The IEA said global oil supplies breached 97 million barrels per day in October, up 2.0 million from a year earlier, as non-OPEC output recovered from lower levels in the previous month.
And even though lower oil prices will lead to a decline in US tight oil production next year, it will take months to clear the market’s glut, the IEA said.
“This massive cushion has inflated even as the global oil market adjusts to $50 per barrel. Demand growth has risen to a five-year high of nearly 2 million bpd... But gains in demand have been outpaced by vigorous production from OPEC and resilient non-OPEC supply — with Russian output at a post-Soviet record and likely to remain robust in 2016 as well,” the IEA said.
On Thursday, OPEC said in its monthly report that inventories in developed economies were showing their largest excess, relative to the five-year average, in at least 10 years.
A stock overhang that first developed in the United States due to soaring production has now spread across developed nations as well as China and India, the IEA said.
“This surplus crude provides some relief, with OPEC’s spare production buffer stretched thin as Gulf producers pump at near record rates,” the IEA said.
“The shock absorber provided by oil stocks is no longer restricted to just crude. As refineries ran flat out to meet soaring demand for gasoline in top consumers the United States and China, distillate inventories ballooned as a consequence.”
High stocks could protect the market from a supply crunch should there be a lengthy spell of cold temperatures.
“But the current forecast is for a mild winter in Europe and the US If it turns out to be true, bulging stock levels will add further pressure and oil market bears may choose not to hibernate,” the IEA said.
EASING DEMAND GROWTH
Meanwhile, world demand growth is forecast to ease closer to a long-term trend of 1.21 million bpd in 2016 from a very high 1.82 million bpd this year.
“The impact of oil’s steep price plunge on end users is unlikely to be repeated and economic conditions are forecast to remain problematic in countries such as China,” the IEA said.
The IEA said that despite the resilience of producers such as Russia, non-OPEC supply is forecast to contract by more than 600,000 bpd next year.
US light tight oil, the driver of non-OPEC growth, is expected to decline by 600,000 bpd next year, versus previous expectations of contraction by 400,000 bpd.
“Record-high output in Russia provides a partial offset. Russian producers are favoring developments that boost output in the near term, while the rouble’s depreciation and Russia’s oil taxation system are neutralizing the impact of lower prices and spending curbs,” it said.
The IEA raised its forecast for 2016 call on OPEC supply by 200,000 bpd to 31.3 million.
It sees the call on OPEC in the second half of 2016 rising by 1.4 million bpd from the first half to 32 million bpd, which is higher than the group’s current production.
A market share battle between Russia and OPEC producers in Europe is intensifying. Iraq has overtaken Saudi Arabia as the second-largest seller and Iran has already lined up buyers for its oil for when sanctions are lifted.
The IEA cited market sources on Friday as saying Tehran would be able to sell at least an extra 400,000 bpd to buyers in Asia and Europe once sanctions are lifted, including to refiners in Italy, Greece and Spain who prefer to use Iranian crude as their baseload feedstock.
“For this reason, producers are likely to grow still more competitive on pricing,” the IEA said.
“Sour crude markets appear especially oversupplied with discounts versus sweet grades widening. Europe is awash with competing sour crudes from the FSU (former Soviet Union) and Middle East and US sour crudes remained depressed by refinery maintenance,” the IEA said.
Japan exports to US fall, business mood sours amid fears of trade war
- Exports to the US dipped 0.9 percent in June from the same period a year ago on waning shipments of cars and semiconductor manufacturing equipment
- The batch of data highlighted concerns among Japanese policymakers who worry Trump may resort to tariffs or other protectionist measures to fix trade imbalances with Japan
TOKYO: Japan’s exports to the US fell for the first time in 17 months and Japanese business sentiment soured amid worries about US President Donald Trump’s protectionist trade policies.
Exports to the US dipped 0.9 percent in June from the same period a year ago on waning shipments of cars and semiconductor manufacturing equipment, two of Japan’s most important export products.
Thursday’s trade data came on the heels of the Reuters Tankan, which showed business sentiment slipped in July, reflecting companies’ fears about an intensifying trade dispute between the US and China.
The batch of data highlighted concerns among Japanese policymakers who worry Trump may resort to tariffs or other protectionist measures to fix trade imbalances with Japan under his “America first” policy.
With American imports down 2.1 percent, Japan’s trade surplus with the US widened 0.5 percent year-on-year to ¥590.3 billion ($5.24 billion). That could make it a potential target for Trump’s protectionist policies.
Japan’s global exports rose 6.7 percent in June, while imports gained 2.5 percent.
“Overall exports remain healthy for now, but we are not sure how things are going to turn out on the trade policy front,” said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities. “It’ possible talk of tariffs and trade friction could reduce corporate investment.”
The Reuters Tankan, which tracks the Bank of Japan’s closely watched quarterly tankan survey, found manufacturers’ sentiment index stood at 25 in July, down one point from June, and the service sector’s mood fell to 34 from 35 in the prior month.
The index subtracts the percentage of companies that feel negative about the economy from those who are optimistic, so a positive number means more businesses are upbeat.
Concerns about protectionism were widely cited in the Reuters poll of 483 large- and mid-sized companies, of which 268 responded between July 2-13, particularly among exporters of cars, precision machinery and metal products.
The US this month imposed 25 percent tariffs on $34 billion of Chinese goods to lower the US trade deficit, and China quickly retaliated with an increase in tariffs on US goods.
“Our clients are increasingly taking a wait-and-see stance on capital expenditure in the face of uncertainty over trade friction between the US and China and the EU,” a manager of a machinery maker wrote in the survey.
“Uncertainty is rising over capital spending plans at our client firms due to the expansion of protectionist policies and geopolitical risks,” said another machinery maker.
The manufacturers’ index is seen rising to 29 in October, while the service-sector index is expected to hold steady, after July’s decline led by real estate/construction firms.
The BOJ’s tankan showed earlier this month that big manufacturers’ mood soured for a second straight quarter in the three months to June, hurt by rising input costs and as US trade protectionism clouds the outlook for Japan’s export-dependent economy.
Still, the mood among non-manufacturers improved slightly and big firms’ solid capital spending plans offered some relief.