IEA sees oil demand growth slowing: Update 2OREANDA-NEWS. July 13, 2015. Global annual oil demand growth is set to slow to 1.2mn b/d next year from 1.4mn b/d in 2015, because a 1.8mn b/d increase in January-March compared with the first quarter of 2014 stemmed from a temporary support of the unusually cold European winter weather, the IEA said.

Demand growth fell to 1.4mn b/d year-on-year in the second quarter and will slow further in July-December to 1.2mn b/d, the IEA said in its monthly Oil Market Report (OMR). "Post-recessionary bounces" that boosted consumption in January-March are also likely to have been a temporary factor, it said.

World demand is forecast to average 95.2mn b/d in 2016, "significantly below most of the existing projections for oil supplies", and developing economies — especially in Asia — are set to drive the annual growth, the IEA said.

"OECD oil demand growth will likely vanish in 2016, as long-entrenched efficiency gains cancel out the potential OECD demand gains attributable to economic growth," the energy watchdog said.

The demand forecast can be revised down if Greece exits the eurozone, or up if sanctions against Iran are lifted, the IEA said.

Surging Opec and non-Opec supply took global production to 96.6mn b/d in June, an increase of 3.1mn b/d compared with a year ago. Opec crude and NGLs accounted for most of the growth, the IEA said. Total supply stood at 96.4mn b/d in the second quarter, up from 95.3mn b/d in January-March and 93.1mn b/d in the second quarter of 2014.

"After expanding by a massive 2.4mn b/d in 2014, non-Opec oil production growth is expected to ease to 1mn b/d in 2015 before grinding to a halt in 2016," the IEA said. Non-Opec supply is forecast to average 58mn b/d this year and next, up from 57mn b/d in 2014.

Production growth will continue next year in the US, Canada and Brazil, offsetting declines elsewhere. In the US, a 2016 growth of 300,000 b/d will be much slower than 900,000 b/d this year and 1.7mn b/d in 2014. "In contrast to recent trends, gains will stem from new projects in the Gulf of Mexico and from NGLs, while growth in light tight oil supplies is curbed by the recent drop in drilling activity", the IEA said.

Light tight oil output growth stalled in May and is likely to stay flat until mid-2016, compared with an annual growth of 1mn b/d in January-May and 1.8mn b/d in 2014, the IEA said.

The rebalancing in the oil markets that started with a sharp oil price drop last year has yet to run its course and is likely to continue well into 2016, according to the report.

"The supply response to lower prices is on the way, and US light tight oil production is feeling the impact," the IEA said. "Barring a major supply disruption elsewhere, it may also take another price drop for the full supply response to unfold."

The IEA estimates that Opec's supply reached 31.7mn b/d in June, the highest in over three years and some 1.5mn b/d higher than a year earlier, thanks to record high output from Iraq, Saudi Arabia and the UAE. The watchdog sees the call on Opec crude and stock change for 2016 rising by 1mn b/d to 30.3mn b/d compared with this year's 29.3mn b/d.

"Strong production gains by Iraq are expected to drive estimated Opec capacity to 35.2mn b/d in 2016 — marking a return to growth for the producer group for the first time since 2012," the IEA said. It sees Iraq accounting for more than half of Opec's 430,000 b/d capacity growth next year.

"Outside of Iraq, Libya is the only other country due to post a material increase in Opec capacity — 150,000 b/d — in 2016, provided it can overcome security and infrastructure issues," the IEA said.