Oil pact could sop up mar­ket glut: IEA Agency hikes de­mand fore­cast for 2016 and 2017

Kuwait Times - - BUSINESS -

A pact by lead­ing pro­duc­ers to cut out­put could quickly be­gin sop­ping up the glut on the oil mar­ket that has weighed on prices, the IEA said yes­ter­day as it also hiked its de­mand fore­cast.

The agree­ments, if im­ple­mented, would “has­ten the mar­ket’s re­turn to bal­ance by work­ing off the in­ven­tory over­hang,” said the In­ter­na­tional En­ergy Agency, which analy­ses en­ergy mar­kets for ma­jor oil con­sum­ing na­tions. The re­cent deals are the first joint cuts by OPEC and non-OPEC na­tions since 2001 and aim to re­duce pro­duc­tion by just un­der 1.8 mil­lion bar­rels per day (mbd).

“If OPEC and non-OPEC were to im­ple­ment strictly their agreed cuts, global in­ven­to­ries could start to draw in the first half of next year,” it added. The IEA said it was not mak­ing any fore­cast, but sug­gested that im­ple­men­ta­tion of the pact could re­sult in a draw of 0.6 mbd into stocks.

Oil stocks in the ad­vanced na­tions which fund the IEA hit a record of 3,102 mb in July. While they have since de­clined, “they re­main 300 mb above the five-year av­er­age, pro­vid­ing a more than am­ple cush­ion go­ing into 2017”, said the IEA.

The IEA also said that “an im­plicit goal” of the pact may be “to keep the price of oil from fall­ing be­low $50” per bar­rel. Crude oil prices have risen by around $10 per bar­rel in re­cent weeks on the deals by the OPEC and nonOPEC na­tions.

The bench­mark in­ter­na­tional con­tract, Brent crude, was trad­ing at around $55.99 per bar­rel in late morn­ing yes­ter­day, around 50 cents up from its level ahead of the re­port.

“Clearly, the next few weeks will be cru­cial in de­ter­min­ing if the pro­duc­tion cuts are be­ing im­ple­mented and whether the re­cent in­crease in oil prices will last,” said the IEA. A price of $50 per bar­rel is seen as the level at which it be­comes prof­itable for many com­pa­nies to pro­duce oil. Oil ex­port­ing na­tions have been suf­fer­ing with prices un­der that level, even drop­ping be­low $30 per bar­rel at the be­gin­ning of this year, as Saudi Ara­bia led OPEC na­tions in step­ping up out­put in or­der gain mar­ket share and push ri­vals with higher pro­duc­tion costs out of busi­ness.

The IEA found that pro­duc­tion in­creases by OPEC na­tions con­tin­ued into Novem­ber, ris­ing by 300,000 bpd to 34.2 mbd. Novem­ber out­put by OPEC na­tions was 1.4 mbd above that one year ago. The car­tel cur­rently ac­counts for around 40 per­cent of to­tal out­put. At a meet­ing last week­end in Vienna, 11 non-mem­bers of OPEC agreed cut of pro­duc­tion by 558,000 bar­rels per day, join­ing an ear­lier pledge by OPEC na­tions to cut out­put by 1.2 mbd for six months.

The IEA said anal­y­sis of the mar­ket out­look for 2017 was com­pli­cated by the fact that OPEC will re­view in May whether to ex­tend the out­put cuts. It said “OPEC also ap­pears to be sig­nalling that high-cost pro­duc­ers should not take for granted that they will re­ceive a free ride to higher pro­duc­tion”.

The IEA noted how­ever that US shale pro­duc­ers, the higher-cost pro­duc­ers that OPEC squeezed via low oil prices, ap­pear to be step­ping up in­vest­ment, but made only mar­ginal in­creases to its fore­casts for North Amer­i­can out­put.

While sup­ply will be re­strained by the pact be­tween lead­ing oil pro­duc­ers, growth in oil de­mand has been stronger than fore­cast. “Global oil de­mand growth of 1.4 mbd is fore­seen for 2016,” said the IEA, which is an in­crease of nearly 10 per­cent from its pre­vi­ous fore­cast and due in part to “ro­bust de­mand” in the United States. De­mand growth in 2017 is now seen at 1.3 mbd, up from its pre­vi­ous fore­cast of 1.2 mbd. That is still con­sid­er­ably be­low the five-year high of 1.8 mbd in de­mand growth reg­is­tered in 2015. —AFP

CARACAS: A man walk­ing past ban­ners show­ing Venezuela’s cur­rency, the Bo­li­var, at the Cen­tral Bank of Venezuela (BCV) in Caracas. Venezue­lan Pres­i­dent Ni­co­las Maduro on Sun­day signed an emer­gency de­cree or­der­ing the coun­try’s largest ban­knote, the 100 bo­li­var bill, taken out of cir­cu­la­tion to thwart “mafias” he ac­cused of hoard­ing cash in Colom­bia. —AFP

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