It can be argued confidently that the market is already very close to balance, and as more data becomes available this will become clearer, the International Energy Agency said in its monthly oil market report for April.
Stocks of the Organization for Economic Cooperation and Development, particularly products, drew by 800,000 b/d in fourth-quarter 2016, but IEA estimates that in first-quarter 2017 they increased 400,000 b/d, mainly for crude oil and mainly in Europe and the US.
Outside of the OECD, a group of stock centers, including Saldanha Bay, the Caribbean and floating storage have, provisionally, seen stocks fall by 300,000 b/d in first-quarter 2017. The net result is that global stocks might have marginally increased in the first quarter vs. an implied draw of about 200,000 b/d.
Oil production
It is now halftime for the 6-month oil production cuts agreed by the Organization of the Petroleum Exporting Countries and 11 non-OPEC countries. So far, the game has gone fairly well for producers.
“For OPEC countries, compliance has been impressive from the start while non-OPEC participants are gradually increasing their compliance rate, although in their case it is harder for analysts to verify the data,” IEA said.
OPEC crude output fell by 365,000 b/d in March to 31.68 million b/d, led by losses in Nigeria, Libya—both exempt from the group’s supply cuts—and Saudi Arabia. Production from most members bound by the 6-month output deal edged lower, boosting compliance in March and putting first-quarter 2017 adherence at a robust 99%. Overall March crude supply was 230,000 b/d below a year ago.
“Even at this midway point, we can consider what comes next. It is of course OPEC’s business to decide on its output levels, but a consequence of—hypothetically—extending their output cuts beyond the 6-month mark would be bigger implied stock draws. This would provide further support to prices, which in turn would offer further encouragement to the US shale oil sector and other producers,” IEA said.
Although the oil market will likely tighten throughout the year, overall non-OPEC production, not just in the US, will soon be on the rise again, IEA warned.
“Even after taking into account production cut pledges from the eleven non-OPEC countries, unplanned outages in Canada as well as in the North Sea, we expect production will grow again on a year-on-year basis by May,” IEA said, adding, “For the full year, we see growth of 485,000 b/d, compared to a decline of 790,000 b/d in 2016. The main impetus comes from the US where monthly data shows that output reached 9 million b/d in March, up from a trough of 8.6 million b/d in September 2016. We now expect that US production will be 680,000 b/d higher at the end of the year than it was at the end of 2016, an upgrade to our previous forecast.”
Revised demand growth
Another factor that could influence the market balance is revised demand growth. IEA cut the oil demand growth number for first-quarter 2017 by 200,000 b/d to 1.1 million b/d.
New data shows weaker-than-expected growth in a number of countries including Russia, India, several Middle Eastern countries, Korea, and the US, where demand has stalled in recent months. After upgrading demand estimates for second-quarter 2017 and cutting it for the second half of the year, 2017 growth is now at 1.3 million b/d rather than the 1.4 million b/d previously forecast.
The latest Chinese data show further accelerations in demand growth. Having bottomed out in third-quarter 2016 as transitory factors dampened momentum, year-over-year growth has since recovered steadily, reaching 430,000 b/d in first-quarter 2017 as industrial activity solidified. Other Asian economies, such as Hong Kong and Chinese Taipei, have also seen sharp upticks.
