NEW YORK: The International Energy Agency revised down its forecast for oil demand growth by 100,000 barrels per day, despite observing that markets had priced in little geopolitical risk premium after the attacks on Saudi oil facilities.
“For both 2019 and 2020 we have cut our headline oil demand growth number by 0.1 million bpd,” the IEA said in its latest oil markets report, report agencies.“There should be talk of a geopolitical premium on top of oil prices. For now, though, there is little sign of this with security fears having been overtaken by weaker demand growth and the prospect of a wave of new oil production coming on stream,” the report added.
The new production specifically referred to the start-up earlier this month of Norway’s huge Johan Sverdrup project, which is expected to reach full output of 440,000 bpd by mid-2020. The IEA’s latest forecast is one of several downward revisions made to oil demand growth projections this year by the organisation. The IEA last month trimmed its global oil demand growth estimates for the year and next to 1.1 million and 1.3 million bpd, respectively, which is the slowest pace since the 2008 financial crisis as concerns grow about the impact of trade disputes on global growth. The IEA said in the report that markets had “shrugged off” what had been a “textbook case” of a large-scale supply outage. On September 14, aerial attacks temporarily knocked out 5.7 million bpd of Saudi Arabia’s output, or the equivalent of 5 per cent of global production. While prices spiked up to $71 per barrel during intraday trading following the attacks, they languished $2 per barrel below pre-attack levels last week as Saudi Aramco said production capacity had returned to precious levels.
The energy agency also cautioned markets against being too blasé about geopolitical risk, saying threats to oil supply in the Middle East were a constant.
“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.