IEA says oil price may have bot­tomed as high-cost pro­duc­ers cut

The Pak Banker - - MARKETS/SPORTS -

Oil prices may have passed their low­est point as shrink­ing sup­plies out­side OPEC and dis­rup­tions in­side the group erode the global sur­plus, the In­ter­na­tional En­ergy Agency said.

Pro­duc­tion out­side the Or­ga­ni­za­tion of Pe­tro­leum Ex­port­ing Coun­tries will de­cline by 750,000 bar­rels a day this year, or 150,000 bar­rels a day more than es­ti­mated last month, the agency said. Mar­kets are also be­ing sup­ported by out­put losses in Iraq and Nige­ria, and as Iran re­stores pro­duc­tion more slowly than planned fol­low­ing the end of in­ter­na­tional sanc­tions, it said.

"There are signs that prices might have bot­tomed out," the Paris-based ad­viser to 29 coun­tries said in its monthly mar­ket re­port on Fri­day. "For prices there may be light at the end of what has been a long, dark tun­nel" as mar­ket forces are "work­ing their magic and higher-cost pro­duc­ers are cut­ting out­put." Oil prices have re­cov­ered 50 per­cent from the 12-year lows reached in Jan­uary as U.S. shale pro­duc­tion re­treats and as some OPEC mem­bers led by Saudi Ara­bia reached a ten­ta­tive ac­cord with Rus­sia to main­tain out­put at cur­rent lev­els. This "freeze" deal, while cur­rently sup­port­ing prices, is un­likely to have a sub­stan­tial im­pact on mar­kets in the first half of the year, the IEA said. The agency's view on prices is a shift from last month's re­port, in which it said that crude could sink fur­ther as the mar­ket re­mained "awash in oil." Brent fu­tures traded at about $40 a bar­rel in Lon­don on Fri­day.

The out­look for the bal­ance of sup­ply against de­mand in the first half is "es­sen­tially un­changed" from last month, the IEA said. World oil con­sump­tion will in­crease by 1.2 mil­lion bar­rels a day, help­ing to re­duce the global sur­plus from 1.7 mil­lion bar­rels a day in the first half to 200,000 a day in the last six months of the year. Last month it pro­jected the se­cond-half sur­plus would be 300,000 a day. The agency re­peated that it could lower the de­mand es­ti­mate as the price re­cov­ery curbs U.S. ap­petite for gaso­line. In­ven­to­ries in the de­vel­oped world con­tracted last month for the first time in a year from the "com­fort­able" lev­els recorded in Jan­uary, ac­cord­ing to the re­port.

The re­turn of Iran af­ter Jan­uary's nu­clear agree­ment lifted sanc­tions on its oil trade "has been less dra­matic than the Ira­ni­ans said it would be" and fur­ther re­cov­ery will be "grad­ual," the agency said. While the OPEC mem­ber vowed to re­store 500,000 bar­rels a day as soon as sanc­tions ended, it in­stead boosted out­put by 220,000 bar­rels a day in Fe­bru­ary to 3.22 mil­lion, the high­est in four years. Pro­duc­tion from OPEC's 13 mem­bers slipped by 90,000 bar­rels a day to 32.61 mil­lion a day in Fe­bru­ary as the in­creases in Iran were coun­tered by de­clines in Iraq, Nige­ria and the United Arab Emi­rates.

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