Marilyn Radler
Economics Editor
HOUSTON, Apr. 17 -- Despite oil supply disruptions in some key countries, other oil exporters have increased output to assure consumers will be adequately supplied. This, said the International Energy Agency in its latest Oil Market Report, has placed a "wall of crude" on the water waiting to arrive in key consuming regions. Oil exporters have been positioning crude in these regions to mitigate the potential impact of a prolonged supply disruption.
Meanwhile, industry crude oil stocks in Organization for Economic Cooperation and Development countries are low, and product stocks are trending sideways. Amid heightened geopolitical uncertainty, refiners—prepared to pay a premium for short-haul supply to avoid longer-term commitments—have limited their purchases of long-haul crude. Although the market is in backwardation—with the futures price lower in distant delivery months than in near delivery months—due to uncertainties, prompt supply is increasingly available.
Production
IEA estimated worldwide oil production increased 740,000 b/d in March following a 2.25 million b/d increase in February. Higher output from Venezuela, Saudi Arabia, and Kuwait offset declines in Nigeria and Iraq, boosting total output from the Organization of Petroleum Exporting Countries by 95,000 b/d. Spare capacity within OPEC, excluding Iraq and Venezuela, fell to 1.23 million b/d in March, down from 1.67 million b/d a month earlier. Non-OPEC supply was up 240,000 b/d.
During March, war in Iraq suppressed production by a little more than 1 million b/d, and ethnic violence in Nigeria eroded output by 200,000 b/d. IEA reported that Venezuela, whose production is still recovering from the recent 63-day strike, saw a 490,000 b/d increase in conventional crude output and a 293,000 b/d boost in nonconventional crude output. Oil production increased 450,000 b/d in Saudi Arabia and 245,000 b/d in Kuwait.
March OPEC oil output excluding Iraq was pegged at 1.4 million b/d above current targets. When the organization met Mar. 11, it left quotas unchanged, although there has been speculation that targets would be lowered for the second quarter when demand traditionally dips. If oil output were to be cut while OECD stocks are low and concerns persist over summer gasoline supply, the industry's ability to replenish stocks could be hit.
"Industry stocks need to be rebuilt from current tight levels, and demand itself will begin to rise again from second quarter lows, potentially gaining nearly 3 million b/d by yearend. With spare capacity limited, any prolonged disruption in Iraq, Nigeria, or elsewhere would only highlight the near impossibility of sustained and effective seasonal market management," the agency said.
OECD inventories
OECD commercial oil stocks fell 34 million bbl in February, ending the month down 229 million bbl from a year earlier. Forward demand cover stood at 50 days, 6 days off year-ago levels and only marginally higher than at the end of January.
OECD industry crude stocks ended February down only 1 million bbl, and North American inventories fell due to a draw in Mexico. With peak maintenance under way in the US, crude demand fell, reducing the need to build inventory. OECD product stocks fell 35 million bbl during February to 125 million bbl below year-earlier levels.
Draws were centered on distillate fuels, falling in all OECD regions. Other main product categories were little changed. In Europe, gasoline stocks built on larger refinery throughputs and contracting demand.
Contact Marilyn Radler at [email protected].
