Crude: Balance bar

Daily Energy Market Analysis

When will the global oil market get in balance? It already has and according to the International Energy Agency (IEA) that process is accelerating. The global oil market has achieved so-called market balance but much work remains to reduce excess global oil supply. This report comes the day after OPEC and Russia said they will do whatever it takes to reduce global supply. The IEA seems to suggest they have their work cut out for them as U.S. shale output is rising and the potential for more oil from Libya and Nigeria.  

The IEA’s Neal Atkinson was quoted as saying that, "if the current (OPEC) output cuts were to be extended for the rest of 2017, oil stocks would start to fall quite sharply…but because they are falling from such a great height, they won't get down to the five-year average until much later in the year and possibly not then.” The IEA said that while OPEC oil production has risen, compliance to their production cuts is at 96%. But the IEA says that they need to keep a close eye on Libya and Nigeria where there are signs that production might be rising sustainably. Nigeria and Libya pose challenges for the cartel as it has no quota and may make it harder for OPEC to drain the swamp of oil supply.

The IEA forecast global oil demand growth of 1.3 million barrels per day less than a year ago but still above the five-year average. The IEA says that commercial oil stocks in OECD nations fell in February and March to more than 3 billion barrels, but the IEA preliminary data shows an increase in April. OPEC production increased by 65,000 barrels a day at 31.8 million barrels per day last month.

Non-Opec oil production fell by 255,000 barrels per-day but they warn that “vigorous drilling activity” and growth from U.S. shale fields will make up more than half the supply increase from outside the cartel in 2017 at around 600,000 b/d. This is an upward revision from 485,000 b/d expected last month.

This agrees with the Energy Information Administration (EIA) that slowed yesterday’s OPEC-inspired rally. The EIA said that U.S. shale output will rise to 5.4 million barrels a day in May up from the last forecast. They also see U.S. output on track to hit 10 million barrels a day perhaps as early as August. And while that may weigh on prices in the short term, in the long term the lack of investment in the energy space will take its toll.

Bloomberg News says that crude inventories seen dropping to 519.8m bbl in the week ended May 12, according to median estimate of six analysts surveyed by Bloomberg. All six respondents predict stockpile decrease, refinery utilization +0.5 ppt to 92%. Gasoline stockpiles -1m to 240.1m. Distillate inventories -1.25m to 147.5m. Cushing crude inventories -400k bbl last week.

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor.