The global oil market supply and demand was “almost balanced” in Q1 2017, according to a new International Energy Agency (IEA) report released just days before the May 25 OPEC members meeting to discuss oil production quotas.
“It has taken some time for stocks to reflect lower supply…but this report confirms our recent message that rebalancing is essentially here and, in the short term at least, is accelerating,” the IEA said.
The comments come as Brent Crude is trading at $51/bbl and WTI at $48/bbl.
In the lead up to the OPEC meeting, Saudi Arabia, the world’s largest exporter and key OPEC member, expects the cartel to extend its 1.2 million bbl/d production cut another six month to the end of 2017.
Eleven other oil exporters have also agreed to reduce production another 600,000 bbls/d, which includes 300,000 bbls/d from Russia.
Saudi Arabia oil minister Khalid al-Falih recently said that, “OPEC will do whatever it takes to rebalance the global oil market.”
This is an entirely different tone from a couple years ago when Saudi Arabia was determined to maintain market share in the face of growing U.S. shale oil production.
U.S. producers, who aren’t constrained by anything but market forces, have increased production to 9.3 million bbls/d from 8.5 million bbls/d in October 2016.
Here are some highlights from the IEA’s May update:
- Global oil demand growth is still forecast at 1.3 million bbls/d in 2017. Global demand is 97.9 million bbls/d, despite current weakness in a number of previously solid countries – India, US, Germany and Turkey, which curtailed global demand growth by 115,000 bbls/d.
- Global oil supply fell by 140,000 bbls/d in April as non-OPEC, and especially Canadian producers pumped less, largely as a result of the post-fire outage at Syncrude. At 96.17 million bbls/d, output stood 90,000 bbls/d below a year ago. Non-OPEC supply is set to increase 600,000 bbls/d in 2017.
- OPEC crude production rose by 65,000 bbls/d in April to 31.78 million bbls/d as higher output from Nigeria and Saudi Arabia more than offset lower flows from Libya and Iran. OPEC production was down 535,000 bbls/d compared to April 2016. Year-to-date compliance with production cuts remained robust at 96 per cent.
- OECD commercial stocks decreased for a second straight month in March, by 32.9 million bbls (1.1 million bbls/d) to 3,025 million bbls.
- Benchmark oil prices fell after April 11 and traded close to their late-November level, prior the OPEC output deal. Sour grades continued to trade higher than sweet crudes.
- The IEA expects global refining activity to slow down seasonally in the second quarter, forecast to be lower by 370,000 bbls/d from the first quarter, but set to ramp up by 2.4 million bbl/sd by July-August. In non-OECD areas, maintenance and refinery closures in the Middle East, underperformance in Latin America and flat growth in India are not expected to be offset by growth in China and Russia.