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:
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.
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.
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Liam Denning in San Francisco at firstname.lastname@example.org
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