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The rebalancing of the world’s oil market is effectively here, and, in the short term at least, is accelerating, the International Energy Agency said in its latest monthly oil market report (MOMR), which was published 9 days before members of the Organization of Petroleum Exporting Countries were scheduled to meet in Vienna.
However, IEA warned that even if stock draws are likely to be greater in this year’s second half, stocks at the end of 2017 might not have fallen to the 5-year average.
“Much work remains to be done in the second half of 2017 to grain crude stocks further,” IEA said.
In addition to production cuts and steady demand growth, a major contribution to falling crude stocks in the next few months will be a ramp-up in global crude oil runs, IEA said. Starting in March, refinery activity is building up and by July global crude throughputs will have increased by 2.7 million b/d.
US crude production is the most closely watched data point on the supply side, IEA said. After bottoming out in September, US crude output has increased by nearly 465,000 b/d. In line with stronger recent performance from the US shale sector, IEA has revised upwards its expectation throughout 2017, now expecting total US crude production to exit the year 790,000 b/d higher than at yearend 2016, which is an upward revision of 100,000 b/d since last month’s MOMR.
The overall outlook for non-OPEC countries, 11 of which are voluntarily cutting production to support OPEC, shows growth in 2017 of nearly 600,000 b/d, an increase on the 490,000 b/d seen in last month’s MOMR.
While compliance with the agreed production cuts by OPEC and the non-OPEC countries has generally been strong, it is needed to keep a close eye on Libya and Nigeria where there are signs that production might be rising sustainably, IEA said.
According to preliminary data, Libyan production reached 800,000 b/d in May, the highest level since 2014, and any significant increase clearly offsets cutbacks by other OPEC and non-OPEC countries.
As for demand, IEA has left unchanged our headline growth number for 2017 at 1.3 million b/d. Growth was weaker than expected in this year’s first quarter, however, with notable downward revisions seen in the US where demand is essentially flat, Germany, Turkey, and India where the effect of the currency reform lingers on.
Chinese demand remains relatively strong, with a near 425,000 b/d gain in 2017 first quarter, supported by the transport and petrochemical sectors. China account for roughly one third of global oil demand growth in 2017.
India’s demonetization policy continues to cast a long shadow over oil demand, which in March was roughly unchanged from a year ago, leaving negative growth for the first quarter as a whole. The 2017 forecast has been curtailed by 40,000 b/d compared to last month’s MOMR to show growth of just below 200,000 b/d, or 4.6%. India is forecast to account for roughly 15% of global oil demand growth in 2017.