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Crude oil inventories have declined by 440 million barrels of oil so far this year which has erased the inventory built up last year and is ahead of International Energy Agency (IEA) estimates. Morgan Stanley says this suggests the market is more undersupplied than estimated

Oil demand rising 9 17 2021

The IEA Oil Market Report for September 2021 said this week that world oil supply fell 540 kb/d m-o-m in August to 96.1 mb/d and is expected to hold steady in September as unplanned outages offset increases from OPEC+. Hurricane Ida shut in 1.7 mb/d of oil production along the US Gulf Coast at end-August, with potential supply losses from the storm approaching 30 mb.

There believe an uptrend in supply should resume in October as OPEC+ continues to unwind cuts, outages are resolved and as other producers increase.

The IEA showed OECD total industry stocks drew by 34.4 mb in July and stood at 2 850 mb, 185.7 mb lower than the 2016-2020 average and 120.3 mb below the pre-Covid five-year average. Preliminary data for the US, Europe and Japan show industry stocks decreased by a further 31.1 mb while crude oil held in short-term floating storage decreased by 20.3 mb to 101.7 mb in August.

Global oil demand is estimated to have declined for three straight months due to a resurgence of Covid-19 cases in Asia. As a result, 3Q21 has been revised down by 200 kb/d since last month’s Report.

Mobility data is pointing to a brighter future for oil producers. Already signs are emerging of Covid cases abating with demand now expected by the IEA  to rebound by a sharp 1.6 mb/d in October, and continuing to grow until end-year. Global oil demand is now expected to rise by 5.2 mb/d this year and by 3.2 mb/d in 2022.

Morgan Stanley says it found a “useful” relationship between oil demand, on one hand, and mobility data from Apple, Google and Oxford University’s Stringency Index for OECD countries which account for half of global oil demand.

“In short, although the pace of oil demand recovery ebbs and flows, the key underlying driver - ie. mobility - shows increases,” said the analysts who are predicting further improvement this month.

A steep fall in China’s refinery activity in July, followed by Hurricane Ida’s impact on US refining in August and September resulted in an 830 kb/d revision to the 3Q21 global refining throughput, which now stands at 78.5 mb/d, up 1.5 mb/d from 2Q21.

Source: Morgan Stanley, IEA

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