Global OIL market nears balance even as stocks go up

Global OIL Demand

In the beginning, after nearly three years of surplus production, global demand for oil is finaly close to run out. Non counting the growth in the overhang of unused crude oil.

International Energy Agency said that in March, oil stocks in OPEC fell by 17.2 million barrels per day. “Over the first three months of the year, stocks were up by 38.5 million barrels, or 425,000 barrels per day (bpd), after a large increase in January.”

Yet, OECD stocks fell by 8.1 million barrels in February. To 3.055 billion barrels as demand outpaced supply to the tune of around 200,000 bpd between January and March.

Stocks are still 330 million barrels above the five-year average.

Inconsistency Reasons

There are several possible explantions for the inconsistency. For example, demand is overstated or the supply is understated in the estimates. On the other hand, explanation lies with “less visible” stocks, inclouding stocks held at sea. That stocks held at the sea can be either in transit or for speculative reasons. And they can also be on land, but outside the OPEC countries.

“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.” As the IEA info shows.

“The net result is that global stocks might have marginally increased in the first quarter, versus an implied draw of about 0.2 million barrels per day”

We have an interesting second half to come…

Global Level

Looking at the global level, oil held offshore fell to 58.4 million barrels in March. It started from 82.6 million barrels at the end of 2016. Iranian offshore stocks also fell to 4 million barrels in March. It has started from 28 million barrels when sanctions were lifted in early 2016.

“In other words, the full extent of the production cuts has not hit yet,” Bernstein said.

The price of oil LCOc1 has increased to around $56 a barrel. It went from a 13-year low of $27 hit in January last year, which has encouraged a raft of new supply.

For the second half of 2017, the IEA expects non-OPEC supply to rise by 485,000 bpd, above its previous estimate of 400,000 bpd. The one of main reasons would be led by increases in U.S. production growth.

Indeed, although the oil market will likely tighten throughout the year, overall non-OPEC production, not just in the U.S., will soon be on the rise again.

Oil market is a volatile, very interesting market to work on. Especially when it comes to predicting possible trends based on the geopolitical activities around the world.