Market watchers' adjustments offer hints of recovery

Jan. 26, 2015
Because markets look ahead, changes in standard forecasts offer potentially important signals during storms such as the one now pummeling the oil and gas industry.

Because markets look ahead, changes in standard forecasts offer potentially important signals during storms such as the one now pummeling the oil and gas industry.

Oil prices are plunging because growth of supply outran that of demand. They'll continue to plunge until the pattern reverses.

Hints of reversal appear in new forecasts from the three noncommercial market watchers that others who watch the market watch most: the International Energy Agency, the Organization of Petroleum Exporting Countries, and the US Energy Information Administration.

Each month, the agencies publish detailed oil-market projections for the current year. Often, month-to-month adjustments of those projections reflect nothing more than freshening of the data. Sometimes, though, they provide early signs of a market turn-such as the price recovery the oil industry now fretfully awaits.

In their January reports, all but one of the agencies lifted projections for global demand growth from their December levels. And all of them moderated their outlooks for supply.

IEA was the exception, projecting demand growth in 2015 of 900,000 b/d, unchanged from its December forecast. EIA raised its demand projection by 120,000 b/d, and OPEC raised its by 30,000 b/d.

Because supply represents the dominant cause of the price crash, however, it will have to be the dominant force of recovery unless unforeseen economic growth pushes demand far beyond expectations. If OPEC stays its course, the supply adjustment must occur elsewhere.

From outside OPEC, the agencies all continue to forecast supply growth this year. But all of them have trimmed the expected increments: IEA by 350,000 b/d, EIA by 170,000 b/d, and OPEC by 80,000 b/d.

A single month's changes don't constitute trends, of course. And the changes reported here are hardly whoppers. Correction of a few errors might eradicate them next month.

At least they move in the direction of a firmer market. And they offer a possibly useful reminder, while oil companies are laying off workers and slashing capital budgets, that no oil-price excursion lasts forever.

(From the subscription area of www.ogj.com, posted on Jan. 16, 2015; author's e-mail: [email protected])