The International Energy Agency (IEA), famous for underestimating demand, is at it again, lowering their oil demand forecast for this year and next. This comes as oil starts to rebound after a surprise build in crude supply and a panicked stock market set prices tumbling yesterday. Yet, while the crude oil supply increase in the Energy Information Administration (EIA) weekly supply report seemed to be bearish on first glance, a drop-in distillate supply should be raising larger concerns about the market as we will see a sharp increase in demand when we start to rebuild in the aftermath of Hurricane Michael. The drop-in oil and ultra-low sulfur diesel were way overdone unless you believe that yesterday’s stock market sell-off was indicative of the global economy falling apart. The reality is that we may see the market, especially distillate, undersupplied as we go in winter.

Start with the IEA report. The IEA warns that “expensive energy is back — and it’s threatening the global economy.” Well if that is the case, then really the IEA is partly to blame. This is an organization that, despite evidence to the contrary, said that oil demand would be lousy in recent years and helped perpetuate the myth of lower for longer oil prices. Their underestimation of demand probably helped lead to underinvestment, leading us to where we are today. Is it any wonder why global spare production capacity is at an all-time low?

They are also warning of “twin peaks”. The IMF says that both global oil demand and supply are now close to new, historically significant peaks at 100 mb/d, and neither show signs of ceasing to grow any time soon. Fifteen years ago, forecasts of peak supply were all the rage, with production from non-OPEC countries supposed to have started declining by now. In fact, production has surged, led by the U.S. shale revolution, and supported by big increases in Brazil, Canada and elsewhere. In the future, a lot of potential supply could come to the market from places like Iran, Iraq, Libya, Nigeria and Venezuela, if their various challenges can be overcome. There is no peak in sight for demand either. The drivers of demand remain very powerful, with petrochemicals being a major factor.