IEA Reports Global Oil Market Headed Toward Balance

The International Energy Agency (IEA) issued its monthly Oil Market Report on Thursday morning. In the April report, the IEA said that March’s global crude oil supply declined by 300,000 barrels a day compared with March 2015 supply and averaged 96.1 million barrels a day. The March year-over-year decline in global supplies totaled 690,000 barrels a day, according to the agency.

The IEA’s global demand growth for 2016 continues to be forecast at 1.2 million barrels a day, unchanged in the past three months. That represents a decline of about 600,000 barrels a day over demand growth in 2015. Demand growth in the last two quarters of 2015 totaled 2.3 million barrels a day in the third quarter and 1.4 million barrels a day in the fourth quarter.

OPEC production slipped by 90,000 barrels a day to 32.47 million barrels a day in March, according to the IEA. The agency forecasts OPEC production at 32.8 million barrels a day in the second quarter of 2016 and 33 million barrels a day in the third and fourth quarters.

Non-OPEC supply dropped by an estimated 710,000 barrels a day in March to 57 million barrels a day. That’s essentially unchanged from February’s report.
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The decline in non-OPEC supply combined with demand growth that is both lower than last year and basically steady at 1.2 million barrels a day leads the IEA to conclude that “the oil market looks set to move close to balance in the second half of this year.”

Here are some comments from the IEA’s report:

• Part of the recent support for prices arises from expectations of the meeting of leading oil producers scheduled to take place on Doha, Qatar, on 17 April. We cannot know the outcome but if there is to be a production freeze, rather than a cut, the impact on physical oil supplies will be limited.
• We remained confident that in 2016 global oil demand will grow by 1.2 mb/d. In the meantime, India could be replacing China as the main engine of global demand growth. Revised data for late 2015 and early data for 2016 shows year-on-year (y-o-y) growth of approximately 8%. For 2016 as a whole, India will see growth of around 300 kb/d – the strongest ever volume increase.
• Within the ranks of OPEC’s members, the pace of Iran’s return to the market is more measured than some expected but production in March was still nearly 400 kb/d higher than at the start of the year, in line with our forecast.
• For the time being, based on a conservative scenario for OPEC crude oil production of 32.8 mb/d in 2Q16 and 33.0 mb/d in both 3Q and 4Q, our outlook suggests that after big build-up of stocks in the first half of 2016 of 1.5 mb/d the surplus will fall to 0.2 mb/d in both 3Q and 4Q.
• The prompt month contract is flirting with backwardation, partly on the back of summer maintenance plans in the North Sea, but also due to the general feeling of impending market tightness. Our demand and supply numbers are, of course, highly provisional: even if they turn out to be too bullish, there is no doubt as to the direction of travel for the supply/demand balance.

Markets reacted to Thursday’s IEA report by dropping below $41 a barrel for May West Texas Intermediate (WTI), but bouncing back to near $42. Wednesday’s closing price was $41.76. WTI for June delivery closed at $43.01 on Wednesday and dropped to around $42, before bouncing back to around $43 a barrel.