The International Energy Agency (IEA) November report offers no hope for an oil-price recovery any time soon. Over-supply and weak demand for oil will dominate through 2016.

The world has a 1.6 million barrel per day oil production surplus (supply minus demand) as the oil glut enters its 8th consecutive quarter (Figure 1).



Figure 1. World liquids production surplus or deficit since 2011. Source: IEA and Labyrinth Consulting Services, Inc.

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The supply surplus is 710,000 barrels per day lower than it was in the 2nd quarter of 2015 but is higher than in any other quarter since the oil-price collapse began. In fact, it is higher than any other quarterly surplus in the past decade (Figure 2).

Figure 2. World liquids production surplus or deficit since 2006. Source: IEA and Labyrinth Consulting Services, Inc.

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The oil demand forecast for 2015 is the only hopeful part of the IEA report with demand growth estimated at 1.8 million barrels per day compared to 2014 (Figure 3).



Figure 3. IEA annual demand growth and 2015-2016 estimates. Source: IEA and Labyrinth Consulting Services, Inc.

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There are two important qualifications, however, to this good news. First, the comparison is positive only compared to 2014, the worst year for demand growth since the Financial Collapse in 2008. Second, demand growth of 1.8 million barrels per day includes IEA’s estimate for the 4th quarter of 2015. Growth through the 3rd quarter is only 1.5 million barrels per day.

The really bad news, however, is that demand growth for 2016 will fall to 1.2 million barrels per day. This, of course, is also a forecast and is in comparison to the estimated 1.8 million barrels per day for 2015. If 2015 demand growth remains at 1.5 million barrels per day, the 2016 forecast will be flat with 2015.

IEA’s November report is consistent with the EIA report released yesterday. EIA’s report provides a more detailed monthly account of production and consumption than IEA’s quarterly data, and EIA shows that October consumption (a proxy for demand) decreased 510,000 barrels per day compared with September 2015. It further shows that production was flat and that the surplus is not declining as the IEA quarterly data suggests.

The IEA and EIA reports taken together lead me to two unavoidable and disturbing conclusions: over-production continues and a weak global economy is an obstacle to oil-demand growth.