Oil supply deficit in first half likely despite rising stocks
Global oil inventories rose for the first time in six months in January, despite OPEC’s production cuts, but if the group maintains its output limits, the market may tilt into deficit in the first half of 2017, the International Energy Agency said on Wednesday.
The IEA said crude stocks in the world’s richest nations rose in January for the first time since July by 48 million barrels to 3.03 billion barrels.
“The actual build in OECD stocks in January reminds us that it may be some time before global stocks start to fall,” the agency said.
Compliance by the Organization of the Petroleum Exporting Countries with its agreed output cut of 1.2 million barrels per day in the first half of this year was 91 percent in February and, if the group maintains its supply limit to June, the market could show an implied deficit of 500,000 bpd, the IEA said.
“If current production levels were maintained to June when the output deal expires, there is an implied market deficit of 500,000 bpd for 1H17, assuming, of course, nothing changes elsewhere in supply and demand,” the IEA said.
“For those looking for a re-balancing of the oil market the message is that they should be patient, and hold their nerve.”
Within OPEC, Saudi Arabia has shouldered the burden of the production cuts, offsetting poorer compliance by other nations.
In February, Saudi oil production staged a monthly rise of 180,000 bpd, but at 9.98 million bpd, its output remained below its agreed target of 10.06 million bpd and, according to tanker-tracking data, Riyadh is focussing its cutbacks on North America, the IEA said.
“At 32.3 million bpd, the call on OPEC crude during the first quarter of 2017 is higher than average output of 31.9 million bpd so far this year, which could lead to a draw in global inventories,” the IEA said, adding that it was not clear if the group will extend its supply agreement.
“Beyond the nervousness about this legacy supply and concerns about rising production today from some non-OPEC countries; the implementation of the OPEC production agreement appears in February to have maintained the solid start seen in January.”
Beyond OPEC, oil production rose 90,000 bpd in February, as increasing U.S. output offset declines elsewhere.
Compared with last year, total non-OPEC supply was 285,000 bpd lower, of which the United States accounts for roughly half, the agency said.
“The recovery path of U.S. tight oil is key to rebalancing the oil market over 2017, so is the compliance of the 11 non-OPEC countries that agreed to curb output,” the IEA said.
The IEA left its estimate of global demand growth unchanged from its last report at 1.4 million bpd in 2017.
“The market is still dealing with a vast amount of past supply, which will take time to work its way through the system. Meanwhile, demand growth has not provided any further encouragement after three consecutive months when we upgraded our estimates,” the IEA said.