Growth in global demand for crude is set to slow next year as the allure of cheap oil fades, the International Energy Agency (IEA) said on Friday.
The IEA now expects oil demand to grow by 1.2 million barrels per day (mbd) in 2016, after a five-year high of 1.8 mbd this year as cold weather and rekindled economic growth in some countries also boosted consumption.
“Momentum eases towards its long-term trend as recent props — sharply lower oil prices, colder-than-year-earlier winter weather and post-recessionary bounces in some countries — are likely to give way,” the IEA said.
Oil has been in oversupply in world markets this year, easily absorbing strong demand from Europe, China and especially India.
“Indian demand growth soared to its fastest pace in more than a decade in September,” the IEA said.
Indian demand will continue “robust”, helped by economic optimism in the country, an ambitious road-building programme and rising car sales.
Developed countries have continued stockpiling oil and commercial inventories in OECD nations now stand at a record 3 billion barrels, the IEA said.
Growth in worldwide oil stocks slowed in the third quarter, but is still “significantly” above the historical average, it said.
“Stockpiles of oil at a record 3 billion barrels are providing world markets with a degree of comfort,” the agency said, calling these stock levels “a massive cushion” and “an unprecedented buffer against geopolitical shocks or unexpected supply disruptions”.
The IEA does not forecast oil price levels, but hinted at continuing pressure on the price, which has been languishing at well below $50 dollars per barrel. Oil stood at below $45 this week, a drop of over 60 percent since mid-last year.
“Oil market bears may choose not to hibernate,” the IEA said, especially if forecasts for a mild winter in Europe and the United States turn out to be true.
“Bears” in financial market parlance are investors willing to bet on falling prices.
OPEC crude oil supply was steady in October, as Libya, Saudi Arabia and Nigeria pumped more oil, but this was offset by reduced flows from Iraq and Kuwait.
“Saudi Arabia shows no sign of reversing its year-old policy to defend market share rather than price,” in the run-up to OPEC’s next meeting on December 4, the IEA observed, despite the kingdom paying for low oil prices with a ballooning budget deficit.
Russia has reached record output, partly offsetting an overall decline in production from other non-OPEC countries, especially the United States.
Iran has flagged a substantial output increase as soon as international sanctions end in the wake of a nuclear deal with world powers, the IEA noted.