Oil demand is rising. Global oil demand is growing at its fastest pace for five years, responding to lower prices and continued economic expansion in much of the world. The IEA projects a 1.7 mbd demand increase in 2015. National demand estimates submitted to JODI show an even stronger demand growth for the first half of the year.
Still, inventories continue to build as global supply outpaces demand. A Reuters survey shows OPEC oil output rose in September as Iraq’s exports recovered from disruption. Saudi Arabia and other Gulf members keep output steady, sticking to their focus on defending market share. OPEC supply averaged 31.68 mbd in September, which is 2 mbd above the estimated average demand (“call-on-OPEC”) for 2015.
After expanding by a record 1.7 mbd in 2014, US oil production is starting to drop off on lower prices and the sharp reduction in active drilling rigs. However, data released last week showed that crude oil production rose by 94,000 barrels a day in July while in its monthly outlook released three weeks ago, the EIA showed a drop of 60,000 bpd for the month. Shale oil producers are cutting output while offshore production in the Gulf of Mexico is continuing to come online due to significant investments undertaken before the collapse in oil prices. Total supply is expected to drop next year.
Outside the US, sharp cuts in investments will reduce new supply and accelerate decline rates. A slow rebalancing of the market is taking place.