The latest oil market report from the International Energy Agency, has predicted that gains in crude oil prices could be reversed in the foreseeable future, even as militant action in Nigeria has forced production down to thirty-year lows; and Libya remains a long way from significantly increasing its production despite occasional signs of optimism.
The report released on Tuesday said Crude oil prices rallied to a 2016 high above $51/bbl in June, stoked by continuing outages in Nigeria and Canada as well as a steady decline in US oil production. May marked the third straight month of average price rises in Brent and WTI futures.
The report noted that outages in OPEC and non-OPEC countries cut global oil supply by nearly 0.8 mb/d in May. At 95.4 mb/d, output stood 590 kb/d below a year earlier – the first significant drop since early 2013. Non-OPEC supply growth is expected to return in 2017 at a modest 0.2 mb/d, after declining by 0.9 mb/d in 2016.
According to the report, OPEC crude output fell by 110 kb/d in May to 32.61 mb/d as big losses in Nigeria due to oil sector sabotage more than offset higher Middle East output and Iran clearly emerged as OPEC’s fastest source of supply growth this year, with an anticipated gain of 700 kb/d.
“At halfway in 2016 the oil market looks to be balancing; but we must not forget that there are large volumes of shut-in production, mainly in Nigeria and Libya, that could return to the market, and the strong start for oil demand growth seen this year might not be maintained.
“In any event, following three consecutive years of stock build at an average rate close to 1 mb/d there is an enormous inventory overhang to clear. This is likely to dampen prospects of a significant increase in oil prices,” the report said.
It noted that Canada’s shut-in production will fully return in the near future but the troubles in Nigeria and Libya look to be long-standing, adding that this current list of shut-ins might soon be augmented by Venezuela where the deteriorating situation could affect the operations of the oil industry.
“In addition to the unplanned shut-ins, our forecast of production falls due to lower oil prices remains intact. The non-OPEC group of countries will see production fall by 0.9 mb/d in 2016, including a 500 kb/d fall for US shale output.
“At the beginning of the month OPEC provided some clarity to the market by deciding not to re-introduce any form of production management. For planning purposes we have assumed only modest growth in production from member countries. So, assuming no further surprises, in 2H16 we expect the oil market to be balanced, with a small stock draw in 3Q16 offset by a small stock build in 4Q16,” the IEA said.
The report stated that refinery runs in 2Q16 are currently suffering from deepening outages, while throughput is nearly flat year-on-year, as refiners finally catch up with maintenance postponed from 2015. It said the seasonal ramp-up to 3Q16 is expected to be the largest on record, surging by about 2.3 mb/d quarter-on-quarter.