Global oil market ‘almost balanced’ in Q1, says IEA

The global oil market is well on its way towards rebalancing, but high inventories remain an issue, Paris-based International Energy Agency (IEA) said in a report on Tuesday.

Supply and demand were “almost balanced” in Q1 with a global stock build of 100,000 barrels per day (bpd).

“It has taken some time for stocks to reflect lower supply when volumes produced before output cuts by OPEC and 11 non-OPEC countries took effect are still being absorbed by the market,” the agency said.

“In [Q1], we might not have seen a resounding return to deficits but this report confirms our recent message that re-balancing is essentially here and, in the short term at least, is accelerating.”

OPEC agreed with non-member oil producers in December 2016 to cut output by a combined 1.8 million barrels per day (mbd) for six months starting Jan. 1, 2017.

While the deal has helped raise oil prices, and stock draws are taking place, “much work remains” to be done in the second half of 2017 to tackle the global oil inventories.

Assuming that OPEC maintains its April output of 31.8 mbd and nothing changes elsewhere in the balance, there is an implied stock draw of 700,000 bpd in Q2, the agency said.

“Adopting the same scenario approach for the second half of 2017, the stock draws are likely to be even greater,” the IEA added.

In addition to production cuts and steady demand growth, a key factor contributing to falling stocks in the next few months will be a ramp-up in refinery activity, the report said, adding that global crude throughputs will have increased by 2.7 mbd by July.

Oil prices have been fallen close to the $50-mark in recent weeks, after crossing the $55-level earlier in 2017, as the impact of OPEC and non-OPEC output cuts on prices has been offset by higher US supply.

US crude production is expected to end the 790,000 bpd higher than at the end of 2016, an upward revision of 100,000 bpd since the IEA’s report last month, while overall non-OPEC supply is expected to grow by nearly 600,000 bpd in 2017, the agency said.

Another challenge is the prospect of higher output from OPEC members Libya and Nigeria going forward, even as compliance by the cartel to the production agreement has been generally strong so far.

“According to preliminary data, Libyan production reached 800,000 bpd in May, the highest level since 2014, and any significant increase clearly offsets cutbacks by other OPEC and non-OPEC countries,” the IEA said. 

Write to Jerusha Sequeira at jerusha.s@argaamnews.com