As global demand for oil slows, surging U.S. shale and light tight oil (LTO) production is causing Saudi Arabian and West African crude oil exports to be diverted elsewhere, while U.S. gasoline exports to the world market are expected to rise, according to the International Energy Agency (IEA).
In the latest installment of its monthly Oil Market Report, the IEA said the recent slowdown in global oil demand “is nothing short of remarkable.”
“Latest statistics show that demand growth slowed to below 500,000 b/d year-on?year in 2Q2014 for the first time in two and a half years. Demand projections for 3Q2014 have been revised downwards, as have been forecasts for 2014 and 2015 as a whole. While demand growth is still expected to gain momentum, the expected pace of recovery is now looking somewhat more subdued.”
And while the IEA gave kudos to the Organization of the Petroleum Exporting Countries (OPEC) for keeping supplies near the target of 30 million b/d despite the ongoing violence in Libya and Iraq, the agency said “shifts in the direction of OPEC export flows [are] noteworthy,” and are being impacted by rising unconventional production in the U.S.
“In recent years, surging LTO production has backed out U.S. imports of West African crude, which are now moving to Asia,” the IEA said. “Saudi exports seem to be showing the beginning of a similar shift. Saudi exports as a whole are likely to have run below 7 million b/d for the last four months, their lowest level since September 2011. Exports to the U.S. led the drop amid rising Saudi domestic demand for crude burn and refinery runs.”
According to the IEA, Saudi Arabia’s national oil and gas company, Saudi Aramco, “appears to be pricing oil out of the U.S. market by ratcheting up official selling prices [OSP] to North America, while OSPs to Asia have come off, likely setting the stage for a broad rebalancing of trade flows. Thus is the global crude market continuing to adjust to the new North American supply reality.”
The IEA added that with the rise in LTO and natural gas liquids (NGL) production in the U.S., refiners were investing to absorb increasingly lighter feedstocks, which in turn could mean higher production of light distillates like naphtha and gasoline, as well as liquefied petroleum gas. The domestic demand for gasoline in the U.S. was also declining, thanks to improved vehicle fuel efficiency standards and an increase in biofuel supplies.