Summertime blues

What driving season?

The IEA upped its 2009 demand forecast but reckons that Russian output will surprise on the upside, cancelling out potential upward pressure on prices. The IEA’s monthly oil market report is unlikely to be warmly greeted by economists searching for so-called ‘green shoots’. Pessimistic in tone, the IEA expressed concern about the global economy and poured some rather chilly water on suggestions of recovery. The best it would say was that the global economy may be ‘stabilising’.  

The IEA’s upward revision of global oil demand in 2009 was increased by 190,000 barrels per day (b/d), to 83.9m b/d. For 2010, it upped demand by 70,000b/d to 85.25m b/d. Both revisions were based on stronger Asian, notably Chinese and Indian, demand. With Russia and other non-OPEC nations set to pump some 160,000 b/d more this year than previously expected, covering the upward revision should not prove a challenge.

Stronger Chinese demand drove the upward revisions, with the country’s stockpiling potentially driving up demand in the second half. And driving, pun intended, appears to be exactly what US citizens are not doing. For the second year running the traditional US driving season has proved a damp squib. The IEA described the performance of gasoline and diesel in the US as ‘dismal’ with petroleum demand in the US falling year on year in both June and July.

There’s nothing like a counter seasonal stock build to dampen sentiment. With oil stocks in the OECD sufficient to cover over 60 days of supply at the end of June, largely unchanged from May levels, and high distillate stocks in Europe (notably Germany) suggesting that pre-winter buying is unlikely the market appears pretty weak indeed.

In fact the report even appeared to take a perverse joy from the fact that its latest demand figures placed the IEA, which is, lest we forget, the OECD’s oil watchdog, ‘among the bears for 2009 demand’. The IEA’s assessment largely echoed OPEC’s most recent report. Producers appear largely satisfied with prices of around US$70 per barrel, suggesting that September’s quota review is unlikely to lead to any dramatic revisions. Instead OPEC will probably trot out the by now common refrain of greater compliance. Reassuringly, for us anyway, the EIU remains more bearish putting 2009 and 2010 demand at 83.66m b/d and 84.55m b/d respectively. Apparently the sun never got to us.