The news from the IEA is not good.

“World oil demand growth appears to have peaked in 1Q15 at 1.8 mb/d and will continue to ease throughout the rest of this year and into next as temporary support fades.”

I don’t have great faith in forecasts but the data shows declining demand growth from late 2010 to the 2nd quarter of this year (Figure 1).

Figure 1. Year-over-year demand growth, 2010-2015. Source: IEA and Labyrinth Consulting Services, Inc.

(click image to enlarge)

The weak global economy is the cause of low demand growth. The current debt crisis Greece and collapsing stock markets in China are the latest alarm signals. Related: OPEC Still Holds All The Cards In Oil Price Game

Today, the IMF lowered its world economic growth outlook because of these problems.

“We have entered a period of low growth.”

—IMF chief economist Olivier Blanchard

IEA data shows that world liquids production increased 1.1 mmbpd compared with the 1st quarter of 2015, and demand fell by 410 kbpd (Figure 2). Half of the production increase occurred in June 2015.

Figure 2. IEA quarterly liquids supply and demand.Source: IEA and Labyrinth Consulting Services, Inc.

(click image to enlarge) Related: Top 5 Oil Producing Countries Could See Production Peak This Year

The production surplus (supply minus demand) that is responsible for low oil prices continues to increase (Figure 3).

Figure 3. World liquids production surplus or deficit. Source: IEA and Labyrinth Consulting Services, Inc.

(click image to enlarge)

The Brent crude oil price has fallen from $65 in late June to approximately $58 today. Related: Oil Imports Have Energy Poor Greece In A Stranglehold

Current events in Greece and China, and a possible deal with Iran occur against the backdrop of a growing world oil-production surplus. This surplus consists of two components: over-production and weakening demand growth. Of the two, over-production is the easier problem to solve.

Unconventional production has not declined meaningfully so far and OPEC seems determined to maintain or increase its production. The standoff will be resolved by lower prices. Clearly, the few months of lower oil prices in late 2014 and early 2015 were insufficient to force unconventional production lower. A longer period of much lower prices may be needed.

By Art Berman for Oilprice.com

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