Global demand for oil is
finally close to outstripping supply after nearly three years of surplus
production, despite growth in the overhang of unused crude, the International
Energy Agency said on Thursday.
The
agency said oil stocks across the Organization for Economic Cooperation and
Development (OECD) fell by 17.2 million barrels in March. Over the first three
months of the year, stocks were up by 38.5 million barrels, or 425,000 barrels
per day (bpd), after a large increase in January.
Overall,
OECD stocks fell by 8.1 million barrels in February to 3.055 billion barrels as
demand outpaced supply to the tune of around 200,000 bpd between January and
March, the Paris-based agency said.
But stocks are still 330
million barrels above the five-year average, a key indicator.
"There
are several possible explanations for the discrepancy, e.g., demand is
overstated or supply understated in our estimates. Another potential
explanation lies with 'less visible' stocks, including stocks held at sea
(either in transit or for speculative reasons) and on land in countries outside
the OECD," the IEA said.
"Indeed,
a look at data from various sources shows stocks drawing in some non-OECD
countries over (the first quarter of 2017). Non-OECD stocks are thought to be
roughly equal in size to OECD volumes, but there is far less data available
about them."
Analysts
at Bernstein Energy said the coming quarter was a "make or break" one
for OPEC as the producer group fights to cut global inventories back to their
five-year average.
Demand
for crude oil tends to decline in the first quarter of the year, when
refineries close for maintenance.
Also,
the 60- to 70-day lag between exports leaving the Arabian Gulf and arriving in
major markets means the extent of OPEC supply cuts has yet to bite. And while
the group has reduced supply, it has increased exports, Bernstein said.
"In
other words, the full extent of the production cuts has not hit yet,"
Bernstein said.
Most
of the decline in non-OECD stocks likely came from Iran, where inventories of
ultra-light condensate had been held at sea since the imposition of Western
sanctions in 2012.
The
IEA said Iranian offshore stocks fell to 4 million barrels in March from 28
million barrels when sanctions were lifted in early 2016.
Globally,
oil held offshore fell to 58.4 million barrels in March from 82.6 million
barrels at the end of 2016, the IEA said.
"The
net result is that global stocks might have marginally increased in the first
quarter, versus an implied draw of about 0.2 million barrels per day," the
IEA said.
"It
can be argued confidently that the market is already very close to balance, and
as more data becomes available this will become clearer. We have an interesting
second half to come."
DEMAND OUTLOOK DIMS
The
IEA trimmed its forecast for global oil demand growth in 2017 by 40,000 bpd to
1.32 million bpd. It warned this could prove optimistic given slowing
consumption in the United States and developed Asian economies such as
Australia, Japan and South Korea.
"New
data shows weaker-than-expected growth in a number of countries including
Russia, India, several Middle Eastern countries, Korea and the U.S., where
demand has stalled in recent months," the agency said.
On
the supply front, the agency said global production fell by 755,000 bpd in
March to 95.98 million bpd as OPEC and its partners complied with their joint
deal to cut output by 1.8 million bpd in the first half of this year.
The
Organization of the Petroleum Exporting Countries stuck to its pledge in March,
bringing compliance to a "robust" 99 percent, the IEA said.
The
agency said non-OPEC signatories, including Russia and Oman, raised their
compliance rate to 64 percent, from 38 percent in February.
The
price of oil LCOc1 has doubled to around $56 a barrel from a 13-year low of $27
hit in January last year, which has encouraged a raft of new supply.
For
2017, the IEA said it expects non-OPEC supply to rise by 485,000 bpd, above its
previous estimate of 400,000 bpd, led by increases in U.S. production growth.
"Indeed,
although the oil market will likely tighten throughout the year, overall
non-OPEC production, not just in the U.S., will soon be on the rise
again."
(
Reuters)