OECD commercial oil stocks are close to record levels seen during most of 2016, and are "a big insurance policy" in case of disruptive events such as the attacks on Saudi Arabia's oil infrastructure last month, the IEA said today.
OECD inventories rose by 20.8mn bl in August from July, to 2.974bn bl, the IEA said in its latest Oil Market Report (OMR). This marks the fifth consecutive monthly increase and is 43.1mn bl above the latest five-year average. According to preliminary data, inventories fell by 21.7mn bl in September compared with August.
"The renewed focus on demand and supply fundamentals does not mean that the attacks on Saudi Arabia can be shrugged off as being of little consequence," the IEA said. "Further incidents of this nature in the strategically important Gulf region could happen and cause even greater disruption."
A fresh incident has happened in the region this morning, with Iran's state-owned shipping company NITC reporting explosions on board one of its tankers in the Red Sea.
Despite the Saudi attacks and a string of tanker incidents in the Mideast Gulf this year, there are "little signs" of a geopolitical premium in the oil price, the IEA said. It said security fears have been "overtaken by weaker demand growth and the prospect of a wave of new oil production coming on stream", such as Norway's giant Johan Sverdrup project, which recently started up.
The IEA has cut its 2019 and 2020 global oil demand growth projections by about 65,000 b/d and 105,000 b/d, respectively. It expects consumption to grow by around 1mn b/d this year and 1.2mn b/d next. "For 2019 this reflects changes to 2018 data and for 2020 it reflects a lower GDP outlook," the IEA said.
The IEA expects 2019 growth to be the weakest since 2016. Demand growth averaged only about 400,000 b/d in the first six months of 2019 compared with the same period of 2018. But "growth is expected to quicken to 1.6mn b/d in the second half of 2019, benefitting from a lower base in 2018 and oil prices currently 30pc lower year-on-year", the IEA said.
Global oil supplies dropped by 1.5mn b/d in September, to 99.3mn b/d, as a result of the attacks on Saudi oil facilities, the IEA said. "Even with a swift recovery and steady supply from the rest of Opec, stock draws are likely in the fourth quarter of 2019," it said. The IEA notes the pace of Saudi Arabia's production recovery — it took just 11 days to restore the 5.7mn b/d of output lost in the attacks, it said. But Riyadh's target for a full restoration of output capacity to 12mn b/d by the end of November could "prove ambitious given the amount of time required to source and install equipment", it said.
For next year, "a different picture emerges" on the supply front, "when non-Opec supply growth, led by the US, Brazil and Norway, accelerates from 1.8mn b/d to 2.2mn b/d, reducing the call on Opec to 29mn b/d", the IEA said.
The IEA sees the call on Opec's crude at 30.2mn b/d in October-December 2019 and at 30mn b/d for the whole of this year. Its full-year 2019 and 2020 projections on demand for Opec crude are down by about 100,000 b/d each compared with the previous OMR.