IEA sees oil market flipping into deficit in second quarter

Galtero Lara
Marcha 17, 2019

The Organisation of the Petroleum Exporting Countries (OPEC) and non-affiliated allies like Russian Federation - known as the OPEC+ alliance - have been withholding around 1.2 million barrels per day (bpd) in crude supply from the start of the year to tighten markets and prop up prices. The report released last week coincided with CERAWeek, the annual industry pilgrimage in Houston.

Meanwhile, a weekly report by the US Energy Information Administration (EIA) said US commercial crude oil inventories fell last week as refineries hiked output.

Venezuela produces about 1.2 million barrels of oil a day when operating normally, said the IEA.

After oil prices had a rollercoaster ride at the end of previous year, OPEC+ agreed to cut production by 1.2 mbd in January to June. Consequent to this, the gross USA crude exports would double, leading to greater competition especially in the Asian market.

According to a monthly OPEC report, oil pumping was reduced by 857,000 barrels per day in February compared to October.

This ongoing revolution "will see the United States account for 70pc of the rise in global oil production and some 75pc of the expansion in LNG trade over the next five years, shaking up in the process, the worldwide oil and gas trade flows, with profound implications for the geopolitics of energy", Birol pointed out. OPEC's secretariat urged producers to continue preventing a surplus this year, ahead of a weekend gathering where a Saudi Arabian proposal to prolong the cuts through the second half of the year may be discussed.

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The IEA added that, due to the cuts, OPEC members were sitting on approximately 2.8 million bpd of effective spare production capacity, with de-facto leader Saudi Arabia holding two-thirds of it.

EIA's data also showed that on the exports side, US crude oil exports increased while domestic production rose as well.

Yet, the IEA report projects the demand for Opec crude would drop in 2020 and then rise to average 31.3mbpd in 2023. Over the year, these figures decreased by 2.3 times and 2.2 times, respectively.

IEA President Fatih Birol, whose remarks were included in the report, said that there might be extraordinary changes in the global oil industry in the future and that the USA would continue to influence the global oil market over this five-year period.

A continuation of the tariff war between the world's top two economies could dent growth in fuel demand and dent prices.

Thus despite some silver linings here and there, Opec's problems are far from over.

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