OPEC sees a world that still has too much oil

The oil market is tipping slowly from glut to equilibrium, as output cuts from OPEC and 11 non-OPEC countries start to reduce crude flows. It's not quite there yet. As Bloomberg reported in an article "OPEC Sees a World That Still Has Too Much Oil", the grand "re-balancing" of supply and demand has yet to take place, although the International Energy Agency does at least believe "that the market is already very close to balance."

Cutting oil supply

Output cuts are becoming more effective as non-OPEC participation improves. What's more worrying, and where the IEA's number-crunchers differ sharply with their OPEC counterparts, is what happens next? Re-balancing is one thing, but the OPEC output cut was also meant to usher in a period when demand would start running ahead of supply, and when inventories would be reduced. It's here where there's a hell of a discordance between the two groups, and even within the IEA's own figures.

True, the volume of oil held in tankers -- the most expensive storage option -- has dropped. So, too, has the amount stored in commercial facilities in places such as the Caribbean and South Africa's Saldhana Bay. U.S. crude inventories fell in the week to April 7 by nearly 2.2 million barrels. But before we get too excited, that was the first big drop this year. While refined product inventories in the U.S. are falling sharply, it's really only the middle distillates (which include jet fuel, heating kerosene and gas and diesel oils) that are bucking typical seasonal trends.

The IEA shows global inventories falling at a rate of 200,000 barrels a day during the first quarter of this year. But its analysis of observed stockpiles -- and there are plenty of places where volumes in storage are not easily counted -- suggests "global stocks might have marginally increased" over the period. Confused? You're not alone.

OPEC, which published its own monthly report a day before the IEA, paints a much less optimistic picture. It shows global oil inventories increasing by 430,000 barrels a day in the quarter just ended. No confusion there. The world is still over-supplied with oil, according to its biggest producer nations. And the surplus is big. The IEA reckons about 986 million barrels of oil were added to global inventories in the last three years. OPEC puts the figure at 1.2 billion barrels. Some of that is needed to fill new pipelines and to provide operating inventory for new refineries, but most is merely the result of over-supply.

The outlook for the current quarter is no clearer. The IEA sees further progress, with demand for OPEC oil running about 1 million barrels a day ahead of production, implying a similar-sized stock draw. But OPEC sees a world with supply still running ahead of demand, which will add about 280,000 barrels a day more to inventories.

Stock draws ahead

Extending the output cut will draw oil out of inventory in the second half of 2017. There's one thing they both agree on, though. Things will change in the second half of the year (as the chart above shows). If the six-month output cut is extended, as seems likely, inventories could be drawn down at a rate of about 1.2 million barrels a day in the third quarter. But extending the cuts will be painful for producers. Many, within OPEC and outside, have brought forward planned maintenance (which involves shutting production) to help reach their targets. They won't be able to repeat that trick later in the year.

2250 views


More World news

Azerbaijani boxers aim for the gold at Islamic games

Azerbaijani boxers aim for the gold at Islamic games

Sport facilities of the upcoming IV Islamic Games were presented in Baku today. Among them - Baku Crystal Hall, which will host boxing and volleyball events.  All facilities for competitions, trainings, accommodation of judges, …

Why does EU impose sanctions only against Russia?

Why does EU impose sanctions only against Russia?

Ukraine has been constantly avoiding direct dialogue with the self-proclaimed Donetsk and Lugansk People’s Republics, but the European Union impose sanctions over the implementation of the Minsk agreements only against Russia, the …

Criminal complaint lodged over researcher inciting Erdogan#039s assassination

Criminal complaint lodged over researcher inciting Erdogan's assassination

Following a criminal complaint by Turkish President Recep Tayyip Erdogan, Ankara prosecutors have launched a probe into a former French diplomat for "calling for the assassination of the president," according to …

Kremlin: Russia respects choice of French people

Kremlin: Russia respects choice of French people

Russia is ready to work on building up good relations with France and respects the choice of the French people made during the presidential election, Kremlin Spokesman Dmitry Peskov said. "We support building up …

Mammadyarov leaves for Lithuania

Mammadyarov leaves for Lithuania

Azerbaijani Foreign Minister Elmar Mammadyarov has left for an official visit to Lithuania, the Azerbaijani Foreign Ministry's press service said. Within the framework of the visit, Mammadyarov will meet with his …

US and Italia to conduct observation flight over Russia and Belarus

US and Italia to conduct observation flight over Russia and Belarus

The joint US-Italian mission will conduct an observation flight over the territories of Belarus and Russia under the Open Skies Treaty on April 24-28, the head of the Russian Defense Ministry's Nuclear Risk Reduction Center Sergey …

Moscow holding talks between Lavrov and Mogherini

Moscow holding talks between Lavrov and Mogherini

Russian Foreign Minister Sergey Lavrov is holding talks with the EU High Representative for Foreign Affairs and Security Policy Federica Mogherini in Moscow. The agenda of their talks will include a …

Riots in Paris: anti-fascists fight police after election results announced

Riots in Paris: anti-fascists fight police after election results announced

Radical anti-fascist protesters have clashed with armed police in Paris after hearing the news that Marine Le Pen and Emmanuel Macron appear to have made it through to the run-off in the presidential election in …

Russia boosts military spending

Russia boosts military spending

Russia became the world's third largest military spender in 2016, the Stockholm International Peace Research Institute (SIPRI) said in a report. Russia's military spending was $69.2 billion in 2016, a 5.9% rise over 2015, the …

Guns Continue to Speak Louder than Diplomats in Nagorno-Karabakh

Guns Continue to Speak Louder than Diplomats in Nagorno-Karabakh

One year has passed since the “Four-Day War” – an unprecedented escalation of the Nagorno-Karabakh conflict

more World news