Oil prices may have passed their lowest point as shrinking supplies outside OPEC and disruptions within the group erode the global surplus, the International Energy Agency said.
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Production outside the Organization of Petroleum Exporting Countries will decline by 750,000 barrels each day this year, or 150,000 barrels each day a lot more than estimated recently, the company said. Financial 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 may 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’s been a long, dark tunnel” as market forces are “working their magic and higher-cost producers are cutting output.”
Oil prices have recovered Half 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 effect on markets within the first 1 / 2 of the entire year, the IEA said.
Shifting View
The agency’s view on prices is a shift from last month’s report, that said that crude could sink further because the market remained “awash in oil.” Brent futures traded at approximately $40 a barrel in London on Friday.
The outlook for that balance of supply against demand within the first half is “essentially unchanged” from recently, the IEA said. World oil consumption increases by 1.Two million barrels a day, assisting to reduce the global surplus from 1.7 million barrels a day in the first half to 200,000 a day within the last 6 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 planet contracted recently for the first time in a year from the “comfortable” levels recorded in January, based on the report.
Iran Return
The return of Iran after January’s nuclear agreement lifted sanctions on its oil trade “continues to be less dramatic than the Iranians said it would be” and additional recovery is going to be “gradual,” the agency said. While the OPEC member vowed to restore 500,000 barrels a day when sanctions ended, it instead boosted output by 220,000 barrels each day in February to 3.22 million, the greatest in four years.
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Production from OPEC’s 13 members slipped by 90,000 barrels each day to 32.61 million each day in February as the increases in Iran were countered by declines in Iraq, Nigeria and the Uae. OPEC is still pumping 700,000 barrels a day a lot more than the average amount required from the group this year, the IEA’s data shows.
About 600,000 barrels of Iraq’s exports have been halted through the closure of their northern export pipeline, as the suspension of Nigeria’s shipments of the Forcados grade – amounting to 250,000 barrels a day – “may be in place for a while.”
U.S. oil production will decline by 530,000 barrels each day this year because the price rout takes its toll on investment and drilling, the IEA said. The company also lowered its supply outlook for Brazil and Colombia.
“With no rise in demand expectations high cost oil suppliers will continue to bear the brunt of the market-clearing process,” the company said. “It’s clear the current direction of travel is the correct one, however with quite a distance to go.”
Bloomberg.com
