IEA Reports Global Oil Supply Declined Again in February

The International Energy Agency (IEA) issued its monthly Oil Market Report on Friday morning. In the March report, the IEA said that February’s global crude oil supply declined by 180,000 barrels a day compared with February 2014 supply and averaged 96.5 million barrels a day. The decline is 10% smaller than the January decline, and the total daily supply was unchanged.

The IEA’s global demand growth for 2016 continues to be forecast at 1.2 million barrels a day, unchanged in the past two months. Fourth-quarter 2015 demand growth fell by 1.2 million barrels a day, about half the five-year high of 2.3 million barrels a day posted in the third quarter of 2015.

OPEC production slipped by 90,000 barrels a day to 32.61 million barrels a day in February, according to the IEA. Barring any sort of sharp decline in March, however, first-quarter 2016 OPEC supply will top 32.6 million barrels a day, nearly 200,000 a day more than a recent high of 32.44 million barrels a day in the third quarter of last year.
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Non-OPEC supply dropped by an estimated 750,000 barrels a day in February to 57 million barrels a day. That’s a month-over-month decline of 100,000 barrels a day.

Here are some comments from the IEA’s report:

International crude oil prices have recovered remarkably in recent weeks. From a nadir of $28.5/bbl in mid-January Brent crude is now trading around $40/bbl. This should not, however, be taken as a definitive sign that the worst is necessarily over. Even so, there are signs that prices might have bottomed out.

The factors cited in this report that currently support higher prices include: possible action by oil producers to control output; supply outages in Iraq, Nigeria and the UAE; signs that non-OPEC supply is falling; no reduction in our forecast of oil demand growth; and recent weakness of the US dollar.

The focus is on non-OPEC countries to see if high-cost output is falling. There are already signs that this is happening: in the US, we expect production this year to fall by 530 kb/d, and we have downgraded our 2016 outlook for Brazil, Colombia and others. For the non-OPEC countries we now expect production to fall by 750 kb/d: our view last month was that this number would be 600 kb/d. Of course, there is no guarantee that this trend will continue, but there are clear signs that market forces – ahead of any production restraint initiative – are working their magic and higher cost producers are cutting output.

Markets have reacted to Friday’s IEA report by raising the price of West Texas Intermediate (WTI) for April delivery by about 2.4% to trade at around $38.72 after closing at $37.84 on Thursday. The price rose as high as $38.96 before pulling back. WTI for May delivery traded at $40.26, after reaching a high of $40.47.