International Energy Agency Warns of World Oil Deficit

Crude oil prices have remained firm this week despite Wednesday’s U.S. Energy Information Administration’s (EIA) weekly report on the change in the number of barrels of crude oil held in inventory by commercial firms during the past week coming in at +5.0 million barrel surplus.

U.S. oil output hit a record last week rising to 10.38 million bpd according to the Energy Information Administration. However, for the year inventories still remain in draw down and last 6 months a -42 million barrel draw down in inventories.

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Also this week, the International Energy Agency (IEA) issued a stern warning that oil demand could outstrip supply despite the ramp up in recent shale output. IEA stated in its monthly report “With supply from Venezuela clearly vulnerable to an accelerated decline, without any compensatory change from other producers, it is possible that the Latin American country could be the final element that tips the market decisively into deficit.” U.S. Venezuelan sanctions and political unrest has driven capital investment away from Venezuela and specifically the countries oil industry.

IEA also revised higher its estimate of daily global oil demand growth in 2018 to 1.5 million barrels per day (bpd) which brings the total global daily oil demand nearing 100 million barrels per day with forecast exceeding this number within the next 12 months.

The recent increase in U.S. output is viewed as one of the headwinds for oil prices, though continued emerging market demand fueled by unprecedented emerging market growth will likely keep oil prices firm into the months ahead as the northern hemisphere moves into high demand season. Long-term forecast views a steady rise in global oil demand well into the mid 21st century.