Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

This is just typical. You go all-out to publish something quicker than usual, and what happens? The Brits go and answer five (five!) polls saying they're done with the EU, stealing the limelight. 

Hence, oil prices fell for the fourth day straight on Tuesday, despite the International Energy Agency releasing a monthly oil report that, on the face of it, looks mildly bullish. This June edition even has the IEA's first stab at forecasting 2017 numbers, coming earlier than normal (these year-ahead projections usually surface in July).

Maybe the market's right to take its cue from the noise emanating out of the U.K., though.

The IEA revised its estimate for 2016 demand up slightly and for non-OPEC supply down slightly -- clearly bullish. Its forecast for 2017 has demand growing by 1.3 million barrels a day and non-OPEC supply just 0.2 million barrels a day. Again, bullish.

But if that's the case, then the IEA isn't really pushing it, summing up the outlook with: "the direction of travel seems to be clear."

That's not as robust a prediction as you might find in, say, a British referendum battle, but at least it's honest. The IEA recognizes its limitations -- especially in an oil market that looks very different from what it was only a couple of years ago.

Looking back, the IEA's initial predictions tend to be optimistic on both demand and, to a lesser extent, supply. Take a look:

A Demanding Job
The IEA's initial estimates for global oil demand growth have tended to be too optimistic compared to the actual outcome
Source: International Energy Agency
Note: Data show the difference between first estimates and final outcome. Data point for 2016 reflects difference between July 2015 estimate and current one.


The IEA has also tended to be slightly more optimistic on Non-OPEC oil supply growth
Source: International Energy Agency
Note: Data show difference between initial estimate of supply growth and final outcome. Data point for 2016 reflects difference between July 2015 estimate and current one.

You can see the IEA was really wrong-footed by the financial crisis, with 2008's estimates way off on both sides (before you mock, try to recall what you were predicting in that dizzy summer of 2007).

Notice, though, that 2014 was also a doozy, with the IEA too optimistic on demand and badly underestimating the strength of non-OPEC supply. What isn't in the picture is OPEC supply, which really blindsided many forecasters by continuing to rise despite crashing prices. Since then, the IEA has tried to recalibrate its approach, tending to underestimate the boost that low fuel prices provide to demand and overestimate the resilience of non-OPEC supply. Then there are wildcards such as Canada's fires and Nigeria's recent upsurge in violence. And above all, as I wrote here, balancing supply and demand is only half the battle -- after that, you have to work off the inventories of oil built up already.

Little wonder the IEA is drawing heavily from its store of caveats. On this front, while supply tends to dominate the conversation about oil these days, don't discount demand's potential to make things interesting.

Of the 1.3 million barrels a day of extra demand the IEA foresees in 2017, fully 96 percent relates to emerging markets. The latter, at least in terms of their stock markets, are paying a heavy price for the simmering anxiety around next week's Brexit referendum. 

A Pounding
The MSCI Emerging Markets Index is suddenly tracking sterling's exchange rate to the dollar more closely
Source: Bloomberg
Note: A reading of 1.0 indicates perfect positive correlation.

This makes sense. Any dislocation in financial markets sparked by British voters will tend to strengthen the dollar and shift money away from riskier assets, both generally negative for emerging markets and oil prices. Even if, as the IEA says, the oil market's direction is clear, don't bank on prices taking a straight road up.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in San Francisco at

To contact the editor responsible for this story:
Mark Gongloff at