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Global Oil Market Report Re-Balancing Slows Down

Gasoil News - Published on Tue, 16 Jul 2019

Image Source: Modern Diplomacy
Modern Diplomacy reported that the main message of this report is that in 1H19 oil supply has exceeded demand by 0.9 mb/d. Our latest data show a global surplus in 2Q19 of 0.5 mb/d versus previous expectations of a 0.5 mb/d deficit. This surplus adds to the huge stock builds seen in the second half of 2018 when oil production surged just as demand growth started to falter. Clearly, market tightness is not an issue for the time being and any re-balancing seems to have moved further into the future.

In the meantime, the widely-anticipated decision by OPEC+ ministers to extend their output agreement to March 2020 provides guidance but it does not change the fundamental outlook of an oversupplied market. On our balances, assuming constant OPEC output at the current level of around 30 mb/d, by the end of 1Q20 stocks could increase by a net 136 mb. The call on OPEC crude in early 2020 could fall to only 28 mb/d.

Clearly, this presents a major challenge to those who have taken on the task of market management. The picture will evolve as 2019 progresses, but in the near term the main area of focus remains demand growth. While the GDP estimates behind our forecast are unchanged from last month’s Report, there are indications of deteriorating trade and manufacturing activity. Recent data show that global manufacturing output in 2Q19 fell for the first time since late 2012 and new orders have declined at a fast pace. On the positive side, the mood surrounding the US/China trade dispute appears to have improved and the resolution of outstanding issues would be a massive boost to economic confidence.

The outlook for oil demand growth in 2019 is little changed from our last Report at 1.2 mb/d. On the basis that the economic outlook in 2020 is better, there will be a rebound to 1.4 mb/d. This is despite the fact that we have downgraded our estimate for global oil demand growth in 2Q19 by 0.45 mb/d. There are many reasons for this: European demand is sluggish; growth in India vanished in April and May due to a slowdown in LPG deliveries and weakness in the aviation sector; and in the US demand for both gasoline and diesel in the first half of 2019 is lower year-on-year. Unless the economic backdrop and the trade disputes worsen, global growth is nevertheless expected to be higher in 2H19. There will be support from oil prices, which, if they stay roughly where they are today, will be about 8% below the levels seen last year.

Source :

Posted By : Sanju Moirangthem on Tue, 16 Jul 2019
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