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Global demand growth this year will double 2014 levels

Demand growth is up 320,000 b/d to 1.4m in 2015

Product market strength and unexpectedly strong oil demand growth generally propped up global crude prices in June. Brent was pegged at around $63.26/barrel as Petroleum Economist went to press, while WTI was trading at $59.63/b.

The latest oil market report from the International Energy Agency (IEA) had something for the bulls and the bears.

Global demand growth was revised up 320,000 b/d to 1.4m b/d for 2015 as a whole, signaling that price elasticity is alive and well. As a result, this year’s demand growth will be more than double the unusually weak levels recorded in 2014. During the first quarter demand growth surged to 1.7m b/d, from an average 700,000 b/d in 2014.

Demand growth alone, however remarkable, could not have been the only source of oil price support, dwarfed as it was by a surge in global liquids supply. Global oil supplies fell by 155,000 b/d in May to 96m b/d on lower non-Opec output, but towered some 3m b/d over the same period last year.

Despite signs of a slowdown in non-Opec supply, notably in the US, global production growth remains exceptionally high. As a result, oil inventories have soared, but their breakdown by product and region doesn’t quite match that of demand. More than the rise in demand itself, it is that mismatch between product supply and product demand that seems to have supported prices. Pockets of product tightness in effect appeared to have helped bolster the oil complex, pulling crude prices along.

"Product imbalances have likely been a key factor behind the recent oil price strength, and that particular source of support might soon wane as long-delayed refineries eventually reach full production," said the IEA.

Meanwhile, if economic and financial sanctions are lifted on Iran, the nation, which has the third largest remaining oil reserves in the world, could add 380,000 b/d to global supply by end-2016, offering yet another headwind for crude prices, reported energy research company Wood Mackenzie.

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