The Fuse

Five Charts Showing a Gradual Rebalancing of the Oil Market

by Paul Ruiz | @pmruiz | August 10, 2016

Neither the decreases in global oil supply nor increases in demand have been as consistently strong as expected, leaving stockpiles brimming and oil prices volatile.

Almost two years after oil prices began their historic slide, the global oil market is still in the process of rebalancing—prices have unquestionably remained “lower for longer” than expected, but fundamentals show signs of coming closer into balance. However, neither the decreases in global oil supply nor increases in demand have been as consistently strong as expected, leaving stockpiles brimming and oil prices volatile.

Non-OPEC oil production growth finally turned negative in Q2 as U.S. output fell 0.4 million barrels per day (mbd) year-over-year (y-o-y), the first quarterly contraction since 2008. Meanwhile, non-OECD countries continue to account for the vast majority of global demand growth led by India and China.

Today, Securing America’s Future Energy (SAFE) released its quarterly update to the Energy Security Fact Pack, a data-driven overview of the latest trends in energy security, including domestic and global oil production and consumption patterns, oil market dynamics and prices, and up-to-date information on fuel efficiency and alternative fuel vehicles.

The following charts highlight a global oil market that is rebalancing, but only slowly:

  1. Global Oil Supply Growth Slowing

Global oil production grew just 0.4 mbd y-o-y in Q2 2016 as an additional 0.7 mbd of non-Saudi OPEC supply came online. By contrast, global supply grew 2.9 mbd y-o-y in Q2 2015. In Q2 2016, total U.S. liquids supply fell y-o-y for the first time in more than seven years by 0.4 mbd.

supply growing

  1. Global Oil Demand Continued Steadily Increasing

Global oil demand grew by approximately 1.6 mbd y-o-y in Q2 driven by a 1.1 mbd increase in non-OECD consumption. U.S. demand increased 0.2 mbd y-o-y for a second consecutive quarter. Global oil demand has been increasing since 2009, reaching approximately 95 mbd in Q2.

demand increasing

  1. Non-OPEC Supply Growth Turning Negative

Non-OPEC supply contracted 0.5 mbd y-o-y in Q2, the first decline in seventeen quarters. Global oil demand growth has exceeded non-OPEC liquids supply growth for the past four quarters, a pattern last seen in 2012.

negative non-opec supply

  1. Crude Oil and Other Liquids Inventories Reached New Highs

In the OECD, commercial stocks rose 7 percent y-o-y to 3.1 billion barrels in June, an increase in 203 million barrels. These supplies provide an estimated 67 days of forward cover, an increase of 8 days versus June 2014.

inventories boom

  1. Future Prices Remain Uncertain

Market uncertainty complicates efforts to forecast future oil prices. Investment bank estimates have varied widely over the past two years, and are now anticipating 2017 prices between $45 per barrel (bbl) and $75/bbl. As recently as Q1 2015, some banks forecast prices above $90/bbl for Q1 2016.

future prices

View the full Fact Pack, which includes additional data on global supply and demand, the U.S. vehicle market, supply disruptions, and more.

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