The growing consensus that the OPEC oil cutback initiative isn't working has been met by OPEC members insisting that their efforts combined with rising demand will result in a market rebalance - but a new forecast from the International Energy Agency on March 16, 2017, says demand is in fact slowing.
An IEA report predicted that global demand growth for oil will drop from 1.6 million barrels per day (bpd) in 2016 to 1.4 million bpd this year, due to a weaker economic outlook.
The agency noted, «Early indicators of [1st quarter of 2017] demand support this, with slowdowns seen in January in Japan, Germany, Korea, and India.»
And even though OPEC has cut production for a 2nd month in a row, the IEA points out that «In 2017 non-OPEC output is set to rise 0.4 million barrels a day to 58.1 million barrels a day. The agency goes on to state that this activity plus the huge amounts of stored oil are putting pressure on prices, «with both newly produced and stored crude competing for market share in an increasingly volatile refinery margin environment.»
But if earlier IEA prognostications still count for anything, the agency doesn't necessary share the contention of other analysts that this means rough waters ahead: for example, last August it argued that slowing demand encourages refiners to substantially cut output, which in turn eats into inventories of gasoline, diesel, and other refined fuels: «The resulting product stock draw (fall in stockpiles) will increase refiners' appetite for crude oil and help pave the way to a sustained tightening of the crude oil balance.»
However, the IEA also stated last August that the drop in oil prices «has put the 'glut' back into the headlines even though our balances show essentially no oversupply during the 2nd half of the year.»
Ironically, the ever-optimistic OPEC in February released demand figures that were even lower than that of the IEA: 1.2 million bpd for 2017, up slightly from an earlier estimate and «well above» the 1 million bpd averages of the past decade.
Even though OPEC maintains that demand will eventually exceed supply, it's hard to foresee that happening any time soon, given so many nations pumping above their allotments in defiance of the OPEC agreement; increasing threats that Saudi Arabia will pull out of the deal; and fuel consumption dropping in key countries such as India, whose consumption for January fell the most since 2003, by 4.5 % to 15.5 million tons compared to 16.2 million tons a year ago, according to the Oil Ministry's Petroleum Planning and Analysis Cell.