First-half 2017 oil deficit if OPEC keeps to production cuts – IEA

LONDON (ICIS)–The global oil market may tip into a deficit in the first half of the year if OPEC nations keep to agreed production cuts through to June, the International Energy Agency (IEA) said Wednesday.

If agreements to cut output agreed in Vienna late last year hold until the agreed June expiration point, the global oil market may be in deficit by 0.5m bbl/day for the first half of the year, according to the IEA.

The deficit would be in spite of growing crude inventories across parts of the world, which the Paris-based agency attributes in part to higher OPEC production in the run-up to the Vienna deal.

“For those looking for a re-balancing of the oil market the message is that they should be patient, and hold their nerve,” the IEA said.

Oil prices have kept to a narrow range since OPEC and some non-OPEC producers agreed to cut output, in a bid to tighten global supply and raise prices, giving the impression a floor may have been put under oil prices.

However, this period of stability, which saw Brent crude prices holding place at around $55/bbl, started to erode on 7 March as news emerged of another build in US crude stocks, according to the IEA.

OECD commercial stocks rose 48m bbl in January, the first rise in six months, due to near record US crude stocks and gains in Europe, according to the IEA.

The agency attributed the build-up in stocks to a glut of additional output from OPEC producers in the run-up to the Vienna agreement.

“Prior to the Vienna agreement production from OPEC countries was increasing relentlessly; from September to November inclusive output surged by an estimated 580[,000 bbl/day],”the IEA said in its latest energy outlook report.

“The market is still dealing with a vast amount of past supply, which will take time to work its way through the system,” the agency added.

Overall global oil demand growth is likely to slip to 1.4m bbl/day in 2017 compared to 1.6m bbl/day in 2016, due in part to lower demand seen in January from Japan, Germany, South Korea and India. OPEC currently projects global oil demand growth for the year at 1.26m bbl/day.

Global oil supplies rose by around 260,000 bbl/day to 96.52m bbl/day in February as output rose both for OPEC and non-OPEC producers.

OPEC country compliance with the production accords averaged 98% of the 1.2m bbl/day target in January, although this was influenced in large part by anchor country Saudi Arabia taking on deeper output cuts than it had agreed.

However, the extent of cutbacks from non-OPEC producers that signed on to the agreements are less clear, with output curbs from Russia and several other countries slowly ratcheting up.

“Provisionally, we estimate that the non-OPEC countries have cut production by 37% of their commitment in the first two months of the year,” the IEA said.

While the market may be on the road to a slow rebalancing, the odds of further price shocks remain high, the IEA added.

“The volatility that suddenly broke out last week will probably recur,” the agency said.

Focus article by Tom Brown