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IEA sees oil market balance

IEA sees oil market balance

The oil market is "very close to balance", according to the International Energy Agency (IEA), suggesting producers have largely benefited from Opec's decision to cut supply. In its half-time report on the cartel's cuts to production, the agency cited impressive compliance from the cartel's members, unplanned outages and rising political tension as contributors to prices that have largely traded above $50 (£39) a barrel since the beginning of the year.

This has happened despite weaker than forecast demand in the first quarter of 2017, which the IEA blamed on subdued growth in India and Russia and weaker momentum in other developed countries. And while stock levels may have marginally increased in the three months to April - against an implied drawdown of around 200,000 barrels a day - the IEA believes that a further extension to Opec's cuts would imply bigger stock draws. That would also imply higher prices, although this could be checked by the size of the year-on-year growth in production expected in May, as US shale producers return to the pump.

IC VIEW:

Assuming supply cuts will be extended, the oil price will be dictated by three variables this year: demand growth, the resurgence of US shale production and the ability of Opec's members (and the 11 non-members that have so far underdelivered on their pledges) to keep to their promises. In the nearer term, the lead indicator will be inventory levels. And given that the Opec cuts only came in in January, there's little surprise the expected drawdowns have taken a while to wash through. Therefore, the signs look good for oil producers in the run-up to summer.

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By Alex Newman,
20 April 2017

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