Question on the Reliability of the IEA Outlook


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Since early 2018, the Paris-based International Energy Agency (IEA) has continued to put forward pessimistic predictions to stop rising oil prices. In 2017 / early 2018, he fabricates a bearish scenario from a surge in shale oil production that will neutralize the cuts in OPEC / non-OPEC output.

However, the IEA ignored to consider that the global oil market is rebalancing and continues to do so until the end of 2018 due to a large supply deficit. In addition, now in the fourth quarter of 2018, the IEA estimates are proven wrong because OPEC-plus – OPEC plus Russia and former members of the Soviet Union such as Azerbaijan – balanced the market and producers last June agreed to reduce output cuts. This extraordinary flexibility in oil production has been led by Saudi Arabia to ensure that the energy needed by the world is available.

Earlier this year, the IEA estimated unsatisfactory results for cuts in OPEC / non-OPEC production, despite how it could be unclear. OPEC and its partners have managed a high level of historical compliance with production targets. This has a lot to rebalance the market which has resulted in a large decrease in oil inventories which has kept them below the five-year average. The high level of compliance is largely achieved even before Venezuela's supply shortages continue.

The IEA discusses 2018 challenges prematurely to regulate scenarios for growing US shale production. However, despite the record level of US production, oil exports fell from 2 million barrels per day (bpd) to around one and a half million barrels per day, due to limited logistics and export infrastructure.

All evidence shows that the aim of the IEA is to suppress oil prices. Since the end of October 2017, slowly and steadily, oil prices have risen above the important psychological limit of $ 60 per barrel. The IEA set out to reverse the movement by claiming that a surge in shale oil would overwhelm the market, cutting extraordinary output from other producers.

In the fourth quarter of 2018, the IEA found the views and predictions made earlier this year were incorrect. In the October 2018 Oil Market Report, the IEA cut its forecast for world oil demand growth for 2018 and 2019. The October report reduced the requirements for OPEC crude and increased the scope for building inventories.

This is a strange result. After all, in early October, the IEA has demanded that oil producers increase output because global supply goes into the "red zone." OPEC is considering cutting production, and the IEA urges oil producers to increase production. "The global oil market will go through a very sensitive period – global economic growth as well," IEA Executive Director Dr. Fatih Birol told Bloomberg. "If oil producers care about the health of global economic growth, which I believe they do, they must take steps to better entertain the market."

Again, last week, Birol warned Asian emerging markets of two downward pressures on growth in global oil demand – high oil prices and slowing global economic growth.

It is questionable how the IEA came up with a bearish monthly report after Brent prices hit a four-year high above $ 85 per barrel in early October. A few weeks later, the tone changed when oil prices fell to $ 73 at the end of October. Then, in total contradiction to market evidence, the IEA issued a monthly report calling on OPEC to curb next year's production of 300,000 barrels per day. The forecast for demand growth for 2019 is also revised downward.

Large contradictions arose when the previous IEA monthly oil market report and its one-off announcement were scrutinized, leading to questions about the output and scenario of the IEA World Energy Model (WEM) and its reading of market fundamentals.

IEA revised 2018 global oil demand down 0.13 million barrels per day to 99.16 million barrels per day, higher from year to year at 1.28 million barrels per day compared to 1.39 million barrels per year from year-on-year growth year predicted last month.

Almost universal demand reductions are followed by higher oil prices expected for 2019. However, ongoing concerns and uncertainties that the IEA has increased oil demand growth amid lower economic growth do not have strong support. Lately, oil demand has reached or even surpassed the landmark 100 million bpd. This means that the annual oil demand growth of 2018 rose to 1.9 million bpd, but in the IEA's view, it was much lower.

Previously published by Arab News


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