Despite the upturn in global equity markets and oil prices in recent months, oil market fundamentals remain in a pretty bleak state, according to the latest estimates and forecasts from the International Energy Agency.
The IEA's latest report released Wednesday contained only minor revisions to its key demand and supply data. It raised its estimate of oil demand in 2009 by a bit, and the corresponding number for 2010 by a little bit less.
If that sounds too cheerful, you are right -- these changes had the net impact of reducing the expected year-on-year growth in world oil consumption next year by just over 100,000 b/d, and do little to change the fact that we are on track for a huge contraction in demand of around 2.35 million b/d in 2009.
Indeed, the IEA said that evidence of the global recession bottoming out--let alone a recovery--remained 'patchy.'
Part of the IEA's analysis rested on the state of demand for gasoil, which it said was a key indicator of economic health.
World demand for middle distillates is currently expected to shrink by around 1 million b/d, or 4.1%, this year. Although the year-on-year comparison is skewed by stock building in China last year, the IEA said it would be hard to argue that the recession is really over until the falling trend of distillate consumption is reversed.
In the meantime, the market continues to grapple with high oil stocks, even though the unprecedented level of oil held in floating storage is slowly declining, the IEA said.
In June, when OECD oil stocks normally fall, they actually rose by 280,000 b/d, with most of the increase coming from gasoline and middle distillates, the two key refined product categories, the IEA said.
Even though the overall stock build in the second quarter was a modest 100,000 b/d, stocks at the end of the period were the equivalent of 61.7 days of forward demand cover, or 8 days more than the five-year average.
This is perhaps not surprising -- according to the IEA's own figures, total world oil supply in July was running nearly 1.5 million b/d above estimated global demand for the third quarter.
All this makes for an interesting backdrop to OPEC's upcoming deliberations in early September. While the recent recovery in oil prices to current levels of around $70/barrel may lessen the chances of the group changing formal production targets, the continued over-supply in the market and bursting storage tanks will nonetheless give the ministers attending the Vienna meeting food for thought.
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