The International Energy Agency (IEA) issued its monthly Oil Market Report on Thursday morning. The agency now expects a “dramatic reduction” in the growth of oil stockpiles in the second half of this year. The IEA forecasts that stockpiles will rise by 1.3 million barrels a day in the first half of 2016, falling to 200,000 barrels a day in the latter six months of the year.
In the May report, the IEA said that April’s global crude oil supply increased by 250,000 barrels a day compared with April 2015 supply and averaged 96.2 million barrels a day. April output rose just 50,000 barrels a day, compared with the April 2015 increase of 3.5 million barrels a day. That’s the slowest growth level since the fourth quarter of 2014.
Higher output from OPEC more than offset production declines in non-OPEC countries. For the full year, the IEA raised its non-OPEC production decline from 700,000 barrels a day to 800,000 barrels.
Demand growth for the first quarter has been raised from 1.2 million barrels a day to 1.4 million barrels, led by growing demand in India, China and Russia. Demand growth for the year is forecast at 1.2 million barrels a day, yielding total demand of 95.9 million barrels a day.
The IEA reported that oil production in Iran rose to nearly 3.6 million barrels a day in April, its highest level since November 2011, and exports rose to 2 million barrels a day, up by 600,000 barrels compared with the prior month.
Regarding prices, the IEA had this to say:
A few years ago, shut-ins such as we have seen in Canada would have sent oil prices sharply higher. However, recently Brent crude oil prices have hovered around $45/bbl, with little reaction seen to the Canadian wildfires. General oil market sentiment seems to have improved to such an extent that Brent prices fell into short-lived backwardation in April for the first time since mid-2014, aided by expectations of heavy North Sea field maintenance. Further oil price rises, though, are likely to be limited by brimming crude oil and products stocks that will remain a feature of the market until more normal levels of inventory are reached.
Markets have reacted to Thursday’s IEA report by pushing prices near $47 a barrel for June delivery of West Texas Intermediate (WTI) and above $48 for July-delivered Brent. WTI for June delivery closed at $46.23 on Wednesday and dropped to around $45.80 before bouncing higher on the IEA report.
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