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IEA Oil Report Highlights

Cory
October 11, 2016

We chat about oil a lot on the KE Report and for good reason. The oil market has experienced a huge shift in the past 3 years with the US experiencing a boom in production and prices dropping more than 50% in 2014 and holding at the lower level every since.

Much like central banks around the world tinkering with policy to move currencies and interest rates large oil producing countries have been toying with the market as well. The OPEC countries along with Russia have been calling meetings and releasing public comments on potential production cut. These meetings have recently moved prices above $50/barrel.

I have been on record saying that I do not expect to see $100/barrel oil for a long time. With the recent supposed agreement to cut production by 600,000 barrels a day there is still a huge overhang of inventory and declining demand. While a more reasonable price of in the $50/barrel range (give or take about $5 to $10) given the OPEC countries willingness to cut production a new narrative for the market has been born – OPEC does not have the overwhelming control of the oil price as it once did. Demand is falling and the US has been able increase its production to major player status. There are only a couple of scenarios that I think could change this…

  1. Major bankruptcies in US oil companies.
  2. A much larger/significant and long-term production cut by OPEC.
  3. A major uptick in economic growth.
  4. Some major advancement that requires the use of large amount of oil – This seems very unlikely as the world continues to shift away from the black gold.

I do not see any of these happening in the near term. That is why I continue to believe oil will be constrained at these “new normal” levels.

Here is some of the important data from the IEA oil report…

  • Global oil supply rose by 0.6 mb/d in September, with non-OPEC up nearly 0.5 mb/d on higher Russian and Kazakh flows and OPEC at an all-time high.World oil output of 97.2 mb/d was up 0.2 mb/d on a year ago due to strong OPEC growth. Non-OPEC supply is forecast to drop by 0.9 mb/d in 2016 before rebounding by 0.4 mb/d in 2017.
  • OPEC crude output rose by 160 kb/d to a record 33.64 mb/d in September as Iraq pumped at the highest ever and Libya reopened ports.Supply from the group stood 0.9 mb/d above 2015 due to robust Middle East output. OPEC has agreed to cut supply to between 32.5 mb/d and 33 mb/d, with details to be set by end-November.
  • Demand is forecast to expand by 1.2 mb/d this year, with a similar gain expected in 2017.Growth continues to slow, dropping from a five-year high in 3Q15 to a four-year low in 3Q16 due to vanishing OECD growth and a marked deceleration in China. The potential for colder weather should see growth rebound somewhat in 4Q16.
  • OECD commercial inventories fell for the first time since March, by 10 mb to 3 092 mb in August due to a larger than seasonal decline in crude stockpiles. Preliminary data for September show crude stocks falling in both Japan and the US.
  • Weighed down by autumn maintenance, global refinery throughput in 4Q16 is expected to decline seasonally by 1.1 mb/d, up just 70 kb/d year on-year. Global throughput in 2016 is expected to grow y-o-y by just 220 kb/d, the lowest annual growth rate in more than a decade, excluding the last economic recession.
  • Benchmark crude prices rose in September as market rebalancing continued and participants anticipated an OPEC supply cut.At the time of writing, front month ICE Brent was trading at $53.05/bbl with front month NYMEX WTI lower at $51.15/bbl.

Click here to visit the IEA website and order the full report.

Discussion
1 Comment
    CFS
    Oct 11, 2016 11:44 AM