IEA sees murkier oil outlook as Middle East supply surges

LONDON (ICIS)–The International Energy Agency (IEA) on Wednesday rolled back its previous estimates of tightening oil supply in the second half of 2015 on the back of the potential approach of a final Iranian nuclear deal and a sharp hike in March Middle East output.

The Paris-based agency said in its April Oil Market report: “The outlook is only getting murkier. One of the many questions hanging over the market today is, how quickly could Iran be expected to ramp up output and exports if the agreement were to be made permanent?”

The agency sees global oil demand rising faster than projected and US production slowing more than previously estimated in the second half of the year, but at the same time noted that OPEC production in March represented its highest monthly increase in nearly four years.

“Early indications suggest that OPEC’s robust March production level, up nearly 1.5 mb/d on the year before, may be sustained, if not rise further, in April,” the agency said.

Globally, oil supply increased by an estimated one million barrels per day (bpd) in March, driven by fresh supply from the Middle East, exerting pressure on crude oil prices last month.

A sharp hike in Saudi Arabian, Iraqi and Libyan supplies is behind an OPEC output growth of 890,000 bpd last month. The production cartel held a market share last month of 31.02m bpd of supply out of a global supply of 95.2m bpd.

“Advances in talks on Tehran’s nuclear program not only call into question past working assumptions on future Iranian output, but may already have encouraged other producers to hike supply and stake out market share ahead of Iran’s potential return,” the IEA said.

Meanwhile, the forecast for North American crude oil production in the second half of the year has been adjusted down by 160,000 bpd from the previous estimate.

“[The downward revision is] on the back of a slightly more negative outlook for the US LTO production and Canadian non-oil sands output,”it said

The agency revised up its forecast for global oil demand growth in 2015 for the second consecutive month by 90,000 bpd, taking projected demand up to 93.6m bpd this year.

European product demand grew in some markets in early 2015, and the region’s refining sector has become stronger because of weaker-than-expected runs elsewhere.

“Previously tepid Indian demand has strengthened, as lower oil prices appear to offer further support to an already improving economic outlook. US transport fuel demand has surged in the last few months,” the agency added.