Shrinking Surplus | Russell T. Rudy Energy LLC
As recently as February, the International Energy Agency (IEA) had been warning that the global oil surplus could drive prices down even further. Now, “World Oil” reports that as lower prices are taking their toll, non-OPEC production is slipping to the point that markets could start moving toward equilibrium in the second half of this year. The idea seems to be gaining traction as Credit Suisse Group predicted that stockpiles will begin contracting in the third quarter.
The IEA sees the world oil surplus decreasing to 200,000 barrels of oil per day (bopd) for the last half of 2016. This reduction in output is largely attributable to non-OPEC production in general and U. S. shale in particular. Also, the anticipated influx of Iranian crude into the market is only taking place gradually as financial barriers to its sales still persist even after the lifting of international sanctions.
The Agency also noted the temporary surge in oil prices in anticipation of the meeting between Russia and OPEC in an effort to reduce the surplus. However, the IEA thinks this will have little real impact on the world market.
However, the Agency predicts that non-OPEC production will decline by 700,000 bopd to an average of 57 million bopd this year. While U. S. shale oil production has proven surprisingly resilient to price declines, the IEA thinks the drop in the rig count is already taking effect. Domestic production fell below 9 million bopd last week for the first time in 18 months according to data provided by the U. S. Energy Information Administration.
The IEA also foresees demand as strengthening, especially in India, which is poised to surpass China as the primary driver of global demand. The Agency predicts that demand will grow by 1.2 million bopd, or about 1.2% this year.
While OPEC continues to pump more than the market can absorb, total production still dropped in March by 90,000 bopd in March due to disruptions in Nigeria, the United Arab Emirates, and Iraq.
To read the article in its entirety, please go to http://www.worldoil.com/news/2016/4/14/iea-sees-oil-oversupply-almost-gone-in-second-half-on-shale-drop .
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