Brent crude oil prices have closed below $50/bbl each day since early June and few investors expect a recovery anytime soon, the International Energy Agency said in its July Oil Market Report (OMR).
Money managers slashed net long positions in Brent and West Texas Intermediate crude futures by more than 200 million bbl between the end of May and end of June to 312 million bbl-the lowest net long position recorded since January 2016. June was the fourth straight month of declines in net long positions since a record bullish position was recorded in February following output agreements between the Organization of Petroleum Exporting Countries and major non-OPEC producers.
Investors seem to believe oil-market rebalancing is taking too long with some calling for additional action by producers to speed up the process, IEA said.
Global oil supply in June rose 720,000 b/d month-over-month to 97.46 million b/d, up 1.2 million b/d from a year ago. Non-OPEC production is expected to expand 700,000 b/d in 2017 and 1.4 million b/d in 2018.
OPEC production rises
Raising doubts about the pace of the rebalancing process this month has been a dramatic recovery in oil production from Libya and Nigeria, whose combined output has increased by more than 700,000 b/d, and a lower rate of compliance by OPEC in its own agreement to curb output by 1.2 million b/d.
OPEC crude output in June rose 340,000 b/d month-over-month to 32.6 million b/d. According to IEA data, which is subject to revision, OPEC compliance for the cuts slipped to 78% in June from 95% in May. While the top producer, Saudi Arabia, continues to deliver on its promise to cut output, several other producers have not so far fulfilled their commitments.
However, the output agreement runs until March 2018 and success is judged over the whole period rather than a single month, IEA noted. It will remain to be seen if changing supply from the group as a whole forces an adjustment to current arrangements. The agency also noted that compliance from the 10 non-OPEC producers that volunteered to cut production improved in June to 82%, higher than the rate achieved by OPEC.
In the US, leading company executives have been quoted as saying that oil prices need to be around $50/bbl to maintain production growth, and WTI values have not been consistently above that level since late April. Twenty-three straight weeks of rig count increases ended in late June, according to Baker Hughes data, but, given the recent resilience, IEA has left unchanged its view on US production and on the prospects for non-OPEC production as a whole.
Demand growth rebounds
Meanwhile, preliminary indications suggest that global demand growth, after falling to a 3-year low of 1 million b/d in the first quarter, rebounded to 1.5 million b/d in the second quarter, with strong year-on-year data for countries in the Organization for Economic Cooperation and Development as well as in developing economies.
For the year as a whole, demand is forecast to reach 98 million b/d, with growth revised up 100,000 b/d compared with last month's OMR to 1.4 million b/d. Further growth of 1.4 million b/d is foreseen for 2018, with global demand reaching 99.4 million b/d.
OECD industry stocks in May fell 6 million bbl month-over-month on lower imports of crude and products. Stocks are now 266 million bbl above the 5-year average, down from 300 million bbl in April. Preliminary data show a moderate reduction in OECD stocks for June.
The current market balance implies a global stock draw of 700,000 b/d in the second quarter. IEA points out that actual stocks numbers do not support this picture at the moment, but data for the quarter remain incomplete and numbers for previous months can be revised. More time is needed, the agency said, to confirm if the process of rebalancing has actually started.
