Global demand for oil is finally close to outstripping supply after nearly three years of surplus production, despite growth in the overhang of unused crude, the International Energy Agency said yesterday.
The agency said oil stocks across the Organisation for Economic Cooperation and Development (OECD) fell by 17.2mn barrels in March.
Over the first three months of the year, stocks were up by 38.5mn barrels, or 425,000 bpd, after a large increase in January.
Overall, OECD stocks fell by 8.1mn barrels in February to 3.055bn barrels as demand outpaced supply to the tune of around 200,000 bpd between January and March, the Paris-based agency said.
But stocks are still 330mn barrels above the five-year average, a key indicator.
“There are several possible explanations for the discrepancy, e.g., demand is overstated or supply understated in our estimates.
Another potential explanation lies with ‘less visible’ stocks, including stocks held at sea (either in transit or for speculative reasons) and on land in countries outside the OECD,” the IEA said.
“Indeed, a look at data from various sources shows stocks drawing in some non-OECD countries over (the first quarter of 2017). Non-OECD stocks are thought to be roughly equal in size to OECD volumes, but there is far less data available about them.”
Analysts at Bernstein Energy said the coming quarter was a “make or break” one for Opec as the producer group fights to cut global inventories back to their five-year average.
Demand for crude oil tends to decline in the first quarter of the year, when refineries close for maintenance.
Also, the 60- to 70-day lag between exports leaving the Arabian Gulf and arriving in major markets means the extent of Opec supply cuts has yet to bite.
And while the group has reduced supply, it has increased exports, Bernstein said. “In other words, the full extent of the production cuts has not hit yet,” Bernstein said.
Most of the decline in non-OECD stocks likely came from Iran, where inventories of ultra-light condensate had been held at sea since the imposition of Western sanctions in 2012.
The IEA said Iranian offshore stocks fell to 4mn barrels in March from 28mn barrels when sanctions were lifted in early 2016.
Globally, oil held offshore fell to 58.4mn barrels in March from 82.6mn barrels at the end of 2016, the IEA said.
“The net result is that global stocks might have marginally increased in the first quarter, versus an implied draw of about 0.2 mn barrels per day,” the IEA said. “It can be argued confidently that the market is already very close to balance, and as more data becomes available this will become clearer. We have an interesting second half to come.”
The IEA trimmed its forecast for global oil demand growth in 2017 by 40,000 bpd to 1.32mn bpd.
It warned this could prove optimistic given slowing consumption in the US and developed Asian economies such as Australia, Japan and South Korea.
“New data shows weaker-than-expected growth in a number of countries including Russia, India, several Middle Eastern countries, Korea and the US, where demand has stalled in recent months,” the agency said.
On the supply front, the agency said global production fell by 755,000 bpd in March to 95.98mn bpd as Opec and its partners complied with their joint deal to cut output by 1.8mn bpd in the first half of this year.
The Organization of the Petroleum Exporting Countries stuck to its pledge in March, bringing compliance to a “robust” 99%, the IEA said.
The agency said non-Opec signatories, including Russia and Oman, raised their compliance rate to 64%, from 38% in February.
The price of oil has doubled to around $56 a barrel from a 13-year low of $27 hit in January last year, which has encouraged a raft of new supply.
For 2017, the IEA said it expects non-Opec supply to rise by 485,000 bpd, above its previous estimate of 400,000 bpd, led by increases in US production growth.
“Indeed, although the oil market will likely tighten throughout the year, overall non-Opec production, not just in the US, will soon be on the rise again,” the IEA said.