Oil on the defense after EIA cuts demand projection

Global equities have continued to rally this week as shown in the EMI Global Equity Index table below. The EMI Index is now higher by 1.5% for the week with the year to date loss narrowing to 0.2% or the best level since mid-March. Canada rallied strongly yesterday and has now moved out of negative territory for 2013. Brazil, Hong Kong and China remain the three bourses still showing losses for the year to date. Japan continues to surge and is now higher by 27.8% for 2013 as the weak yen continues to be the big story for this export driven economy. Equities have been a positive price driver for the oil complex.

The EIA released their Short Term Energy Outlook. They lowered their forecast for oil demand growth as did the IEA last month. Following are the main oil highlights.

  • EIA estimates that global liquid fuels consumption outpaced production in the first quarter of 2013, resulting in an average draw in global liquid fuel stocks of 1.3 million barrels per day (bbl/d). Projected world liquid fuels consumption grows by an annual average of 1.0 million bbl/d in 2013 and 1.3 million bbl/d in 2014, lower by 140,000 bbl/d in 2013 and 200,000 bbl/d in 2014 compared with last month's STEO. Countries outside the Organization for Economic Cooperation and Development (OECD) drive expected consumption growth. Projected world supply increases by 0.6 million bbl/d in 2013 and 2.1 million bbl/d in 2014, reflecting a 100,000 bbl/d reduction in 2013 and a 40,000 bbl/d increase in 2014 from last month's STEO. Most of the supply growth comes from North America and other countries that are not members of the Organization of the Petroleum Exporting Countries (OPEC).
  • World liquid fuels consumption grew by 0.7 million bbl/d in 2012 to reach 89.0 million bbl/d. EIA expects growth will be higher in 2013 and 2014 due to a moderate recovery in global economic growth. World consumption reaches 90.0 million bbl/d in 2013 and 91.3 million bbl/d in 2014.
  • Non-OECD Asia is the leading regional contributor to projected global consumption growth. EIA expects refinery crude oil inputs in China to increase in 2013 as new refining capacity continues to come on line and investment in the property market and infrastructure sectors expands. Recent indicators of weaker industrial data at the beginning of 2013 signal slower growth than in prior years. EIA estimates that liquid fuels consumption in China increased by 380,000 bbl/d in 2012. Projected consumption increases by 450,000 bbl/d in 2013 and by 510,000 bbl/d in 2014. This compares with average annual growth of 540,000 bbl/d from 2004 through 2010.
  • EIA projects non-OPEC liquids production will increase by 1.1 million bbl/d in 2013 and by another 1.6 million bbl/d in 2014. North America accounts for almost all of the projected growth in non-OPEC supply over the next two years because of continued production growth from U.S. tight oil formations and Canadian oil sands.
  • OPEC member countries, particularly Saudi Arabia, cut crude oil production heavily in the fourth quarter of 2012. EIA estimates that Saudi Arabia cut crude oil production from an average of 9.9 million bbl/d during the third quarter of 2012 to 9.0 million bbl/d in the first quarter of 2013.
  • EIA estimates that OPEC surplus capacity, which is concentrated in Saudi Arabia, continued at about 2.8 million bbl/d in the first quarter of 2013, an increase of 0.7 million bbl/d compared with the year-ago level but still 0.2 million bbl/d lower than the previous three-year average.
  • EIA estimates that OECD commercial oil inventories at the end of 2012 totaled 2.65 billion barrels, equivalent to 57.9 days of supply. Projected OECD oil inventories fall slightly and end 2013 at 2.60 billion barrels (56.2 days of supply). Inventories increase to 2.66 billion barrels (57.8 days of supply) by the end of 2014.
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