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Oil demand growth estimates for both 2018 and 2019 have been cut, the International Energy Agency revealed in its latest report issued Wednesday.
Last year's oil demand growth estimate has been revised downward by 70,000 barrels per day (bpd) to 1.2 million bpd, while the forecast for this year is cut by 90,000 bpd to 1.3 million bpd, the IEA said.
The estimates come amid global worries over the U.S.-China trade war and increased tensions in the Middle East, but are attributable to a range of factors specific to individual markets.
"The changes reflect lower-than-expected 2018 data in large consuming nations such as Egypt, India, Indonesia and Nigeria," the report said, adding that early data for this year showed demand in Brazil, China and Japan as below the agency's estimates.
The report noted a key divergence between OECD (Organization for Economic Cooperation and Development) countries and non-OECD countries. Demand in non-OECD countries, led by China, India and Russia, actually grew by 930,000 bpd year on year.
Across the 36 OECD member states, demand fell by 300,000 bpd, a second consecutive quarterly slide, though this was primarily within the organization's European and Asian members. In the Americas, oil consumption grew.
The report also revealed a global supply drop in April of 300,000 bpd, led by Iran, Azerbaijan, Kazakhstan and Canada. Non-OPEC supply is forecast to grow 1.9 million bpd versus 2.8 million bpd last year.
The plunge in Iranian supply from the market — previously OPEC's third-largest producer — due to sweeping U.S. sanctions has created "scope for other producers to raise supply," the IEA said. Saudi Arabia, which is still committed to its production cut agreement and supply target of 10.3 million bpd, is set to decide along with the rest of OPEC+ whether this will change during the group's next meeting in late June.
Notable among non-OPEC member growth is the U.S., where the agency says that "strong permitting activity and a recovery in fracking activity in early 2019 should support higher output in the second half of the year." This suggests U.S. production will help balance markets amid the loss of Iranian crude, potentially meaning less help required from OPEC members.
The IEA expects U.S. oil production to increase by 1.7 million bpd this year, compared to a record 2.2 million bpd last year.
Crude output in Iran dropped 130,000 bpd to 2.61 million bpd in April, just before the expiration of U.S. sanctions waivers on eight major Iranian oil buyers. For perspective, in 2017, before the U.S. reimposed sanctions on the country with its withdrawal from the Iranian nuclear deal, its output averaged 3.8 million bpd.
In terms of specific crude grades that importers have been accustomed to buying from Iran, its medium-heavy crudes "can be replaced by similar grades from Saudi Arabia, Iraq, Russia and the UAE," the report said. "As for condensate, Qatar and Australia are well positioned to step in" to fill Iran's shoes.