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IEA thinks oil market may be in balance Report: Although oil demand growth has slowed a little, OPEC production cuts have proved effective as demand moves ahead of supply Alan Bailey Petroleum News
The International Energy Authority in its April Oil Market Report has suggested that supply and demand have come into balance in the global oil market. Moreover, the organization’s short-term forecast actually shows demand moving ahead of supply in the second quarter of this year. Demand and supply The report says that the IEA’s forecast for global oil demand growth has softened slightly relative to the organization’s last forecast. That softening results from subdued gains in demand in Russia and India and “weaker momentum” in the countries of the Organization for Economic Cooperation and Development.
But, on the supply side of the equation, oil production dropped by 755,000 barrels per day in March. Following an agreement by countries in the Organization of the Petroleum Exporting Countries and by others to instigate production cuts, OPEC crude oil production dropped by 365,000 bpd to 31.68 million bpd in March. The OPEC drop, led by Saudi Arabia, and by Nigeria and Syria, neither of which was party to the OPEC cut agreement, was actually more than had been planned. Continued implementation of the agreed program of OPEC cuts should drive a further draw on global oil stocks, the IEA report says.
OPEC is now at the halfway point in the six-month time span of its production cut agreement. And, with the implementation of the agreement being effective, prices have stabilized again after falling by about 10 percent in March, the IEA report says. Some unplanned production outages coupled with rising political tension in the Middle East contributed to the price resilience. Compliance by non-OPEC countries in the production cut agreement is difficult to verify but appears to be improving the report says.
Continuation of OPEC cuts? One major unknown is the question of whether OPEC and the other countries will continue with their lowered production quotas after the current six-month agreement expires. A continuation of the current strategy would likely cause further drawdowns on oil stocks, a phenomenon that would provide support to the global oil price. But an elevated oil price would also provide encouragement for increased production by some producers, in particular producers in the U.S. shale oil industry. And, following unplanned outages in Canada and the North Sea, oil output from these regions will likely start to rise again in May, the IEA report says.
Overall the IEA sees the possibility of a 485,000 bpd rise in oil production for the whole of this year: That compares with a 790,000 bpd decline in 2016. The main impetus for the climb in production this year will come from the United States, where production will likely rise by some 680,000 bpd over the course of the year, the IEA report says.
Indications of balance And, although the IEA anticipates a slowing down of oil demand growth, the demand growth forecast has only dropped from 1.4 million bpd to 1.3 million bpd. The net result will be an increase in oil production more than offset by increasing oil demand.
Although oil stocks within the OECD appear to have grown a bit this year, stocks in several areas outside the OECD have fallen. A net marginal increase in stocks coupled with an implication from supply and demand data that stocks should have been drawn down by perhaps 200,000 bpd indicates an oil market that is close to balance, the IEA report says.
“As more data become available this will become clearer. We have an interesting second half to come,” the report comments with reference to the second half of the OPEC six-month commitment to production cuts.
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