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Demand growth ‘lower than expected’: IEA

Stalled demand in US and weaker numbers in Russia and Middle East drag down agency’s previous forecast

Oil demand growth is set to come in lower this year than previously thought as weaker demand than expected has hit numerous markets including Russia and the US, according to the International Energy Agency (IEA).

Global output is also set to grow year-on-year by next month driving by a continued rise in US stocks, which is aided by production cuts among Opec and other major producers, the agency said in its latest report marking the midway point in the six-month period of the arranged output cuts.

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The IEA had previously forecast oil demand this year to rise by 1.4 million barrels per day. However, this is now set to be 1.3 million bpd, with the forecast for the first quarter alone cut by 200,000 bpd to 1.1 million bpd.

“New data shows weaker-than-expected growth in a number of countries including Russia, India, several Middle Eastern countries, Korea and the US, where demand has stalled in recent months,” the IEA said it its oil market report OMR: Half time”, where it said the agreed chop in production by Opec and certain non-Opec nations including Russia, which came into effect from 1 January, “has gone fairly well for producers”.

“Prices have stabilised again recently after falling by about ten percent in early March, with recent unplanned outages and rising political tension in the Middle East playing a role,” it said. Included in these factors is the US airstrikes on Syrian government air bases and shut-ins in Libya.

“For Opec countries, compliance has been impressive from the start while non-Opec participants are gradually increasing their compliance rate, although in their case it is harder for analysts to verify the data.”

It remains to be seen if Opec, and non-Opec producers, decide to continue the cuts past June, with indications currently suggesting that is likely.

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“It is of course Opec’s business to decide on its output levels, but a consequence of (hypothetically) extending their output cuts beyond the six-month mark would be bigger implied stock draws. This would provide further support to prices, which in turn would offer further encouragement to the US shale oil sector and other producers,” the IEA said.

The agency said, however, that even if those cuts are kept in place, non-Opec production is set to rise, and soon.

“Even after taking into account production cut pledges from the eleven non-Opec countries, unplanned outages in Canada as well as in the North Sea, we expect production will grow again on a year-on-year basis by May.

“For the full year, we see growth of 485,000 bpd, compared to a decline of 790,000 bps in 2016.

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