IEA Reports Oil Supply Outstrips Demand

The IEA’s global demand growth forecast for 2015 has been raised by 75,000 barrels a day to 1.0 million barrels a day. Total daily global demand is now forecast at 93.5 million barrels a day, half-a-million barrels below the expected output. Expect crude prices to fall in the wake of this report.

The agency said in last month’s report that projected reductions in 2015 capital spending could cut non-OPEC supply growth to 800,000 barrels a day. This month’s report carries no new forecast for supply growth in non-OPEC countries, saying only that rig count declines “have yet to dent North American output growth.” Our view is that if there is any denting to be done, it is very unlikely to happen until much later this year.

To meet the expected demand for 2015, the IEA projects OPEC members will need to produce 30.3 million barrels a day in the second half of 2015, above the cartel’s target of 30 million barrels a day. In February, OPEC nations produced 30.22 million barrels a day, down slightly from the January total of 30.31 million barrels a day due to disruptions in Libya and Iraq.

Commercial inventories rose among OECD members by an average 23,100 barrels a day in January to 2.73 billion barrels.

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The U.S. Energy Information Administration (EIA) also updated its Short-Term Energy Outlook earlier this week. The EIA forecast the price of Brent crude to average $59 a barrel in 2015 and $75 a barrel in 2016.

The latest IEA forecast does not include a price forecast but does note that Brent crude traded at $58 a barrel at the end of February, $10 per barrel more than the price for West Texas Intermediate (WTI).

Brent crude for April delivery traded at around $56.50 Friday morning, and WTI traded at around $46.25. Brent is down nearly 1% from Thursday and WTI is down close to 2%.