Any Deal To “Freeze” Crude Oil Production To Have Limited Impact

Any Deal To “Freeze” Crude Oil Production To Have Limited Impact

Any Deal To “Freeze” Crude Oil Production To Have Limited Impact

A deal to freeze Crude Oil production by OPEC and non-OPEC producers will have a limited impact on global supply and markets are unlikely to rebalance before Y 2017, the International Energy Agency (IEA) said Friday.

The IEA, which oversees the energy policies of industrialized nations, said even though the decline in US output was gathering pace and Iran was not adding as many barrels as expected, the world will produce more Crude Oil than it consumes throughout Y 2016.

Oil prices have fallen since June 2014 to as low as 26 bbl, from as high as 115, due to booming OPEC and US tight (shale) Oil supplies.

Prices have recovered to above 40 per barrel in recent weeks as US production declines accelerate and as major OPEC and non-OPEC producers are due to meet in Doha, Qatar, on Sunday, 17 April to discuss a deal to freeze global production.

“If there is to be a production freeze, rather than a cut, the impact on physical oil supplies will be limited,” the IEA said in its monthly report.

“With Saudi Arabia and Russia already producing at or near record rates and very little upside seen apart from Iran any deal struck will not materially impact the global supply-demand balance during the first half of 2016,” the IEA said.

The world has built record stocks over the past year, in excess of 3-B barrels, as production has exceeded demand. The IEA expects stocks to grow by 1.5-M BPD in 1-H of Y 2016, slowing to about 200-K BPD in 2-H of this year, seems like a optimistic approach…

The IEA, which is due to publish its Y 2017 estimates in June, slightly trimmed its estimates for Y 2016 global demand growth from last month to 1.16-M BPD.

That represents a significant decline from the very strong growth of 1.8-M BPD in Y 2015 on the back of low prices. The IEA said demand growth was slowing in China, the United States and much of Europe.

“India could be replacing China as the main engine of global demand growth,” the IEA said, estimating its demand growth at 300,000 BPD, the strongest ever volume increase.

“Reforms to the rules allowing refiners to directly import crude oil are all part of a general trend towards liberalisation that should underpin India’s growth momentum.”

On the supply side, the IEA said it saw non-OPEC production falling by around 700,000 BPD in Y 2016, little changed from last month.

“There are signs that the much-anticipated slide in production of light, tight oil in the United States is gathering pace. By early April the rig count had fallen nearly 80 percent from the peak seen in October 2014 and more anecdotal evidence is emerging of financial problems taking their toll on the shale pioneers.”

Meanwhile OPEC member Iran’s return to the market was more measured than some expected after the lifting of sanctions in January, although its March production was still nearly 400,000 BPD higher than at the start of the year, the IEA said. And it has about 55-M bbls in storage, ready for market. 

USD/bbl. 40.36 -1.14 -2.75% May 2016 4:59p EDT

Have a terrific weekend.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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