Oil market rebalancing still in early stages: IEA

OREANDA-NEWS. April 16, 2015. The IEA points to unexpected pockets of oil demand strength and a slightly weaker outlook for North American unconventional production in its latest Oil Market Report (OMR).

But recent developments — notably the framework agreement between Iran and the P5+1 world powers — suggest the rebalancing of the market following the oil price collapse may still be in its early stages, the Paris-based energy watchdog said.

"In some ways, the outlook is only getting murkier," the IEA said. "Advances in talks on Tehran's nuclear programme not only call into question past working assumptions on future Iranian output, but may already have encouraged other producers to hike supply and stake out market share ahead of Iran's potential return."

The IEA does not expect a substantial production increase from Iran before the end of the year. But "Tehran could, in theory, raise exports out of floating storage before then", it said.

The IEA has pared back its projection for non-Opec supply growth, mainly because of unrest in Yemen and a slightly more negative outlook for US tight oil and Canadian oil sands production.Non-Opec production is forecast to increase by 630,000 b/d this year, compared with growth of 740,000 b/d projected in last month's OMR.

The IEA estimates fighting in Yemen has halved production there to 60,000 b/d. Its forecast for US output growth this year has been cut to710,000 b/d from 750,000 b/din last month's OMR, underpinned by a slight decline in tight oil production in the second half of the year.

"The continued drop in the number of oil rigs, reductions in capital expenditures, and a credit crunch among light tight oil producers in the US point to challenging times ahead for light tight oil growth," it said. "The decreases in drilling rates and backlog of uncompleted wells point to slower production growth than previously expected."

The IEA has raised its forecast for global oil demand growth this year to 1.08mn b/d from 990,000 b/d in last month's OMR.Global economic conditions are improving and a colder winter than last year led to demand in the first quarter exceeding expectations. But "looming challenges remain, most notably what will happen when exceptionally loose global financial conditions tighten", it said, adding the US Federal Reserve is expected to raise interest rates this year.

The revisions to demand growth and non-Opec supply growth projections have not led to a material change in the IEA's forecast for call-on-Opec crude.

The call on Opec crude for the second half of this year has been revised marginally higher to 30.35mn b/d from 30.3mn b/d in last month's report. For the full year, it has been left unchanged at 29.5mn b/d.