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The rebalancing of the global oil market may still be in its early stage with the outlook “only getting murkier”, according to the International Energy Agency, as uncertainties remain about demand and supply responses to the steep drop in prices.
“The backdrop against which the adjustment is playing out is constantly changing,” said the wealthy nations’ energy watchdog in its monthly report. Expectations of supply and demand responses tightening the market from the middle of this year may need to be reassessed, the IEA added.
The price of Brent crude peaked last year at $115 a barrel in June and has since dropped by half.
The international marker and its US counterpart edged higher after the release of the report and extend their gains after new data from the US energy department showed that US crude stockpiles grew at their slowest pace since January. Inventories increased by 1.3m for the week to April 10
In afternoon trading Ice May Brent rose $1.26 a barrel to $59.69 while Nymex May West Texas Intermediate increased $2.34 a barrel to $55.63.
Pockets of strength in oil demand have unexpectedly emerged of late as colder temperatures in the first quarter coincided with stronger economic growth across many OECD economies, the IEA said. Asian demand led by India, China and South Korea also grew, while Russia surpassed expectations.
Demand growth rose by 1.3m barrels a day in the first quarter of 2015 compared with 1.1m b/d in the same period the year before, although the agency questioned if these levels could be sustained. Even so, the IEA raised its full-year forecast by 90,000 b/d to 93.6m b/d.
Meanwhile, global supply rose to 95.2m b/d in March, tallying a big 3.5m b/d gain from the year before. Opec crude production recorded its highest monthly increase in nearly four years, up 890,000 last month to 31.02m b/d, after dramatically higher output from Saudi Arabia, Iraq and Libya.
The “call on Opec crude and stock change” was revised slightly higher for the second half of this year, to 30.35m b/d. This is above the group’s official production ceiling of 30m b/d, but the IEA left the full-year figure unchanged at 29.5m b/d.
The IEA suggested that advances in nuclear talks between Iran and world powers could have encouraged “other producers to hike supply and stake out market share” ahead of more Iranian barrels coming to market.
“One of the many questions hanging over the market today is, how quickly could Iran be expected to ramp up output and exports if the agreement were to be made permanent?”
The agency acknowledged there were obstacles in the way of any final deal by June but said any comprehensive agreement “could open the way for Tehran to raise output and increase its share in the world oil market”.
Iranian oilfields pumped 2.8 mb/d of crude in March but are capable of producing as much as 3.6 mb/d within months of sanctions being lifted. Although it may take time for Iran to expand production capacity, “ramping up flows from already developed fields could be faster”.
US and EU sanctions have cut exports of Iranian crude to about 1.1m b/d from roughly 2.2m b/d at the start of 2012.
Non-Opec oil production is estimated to have risen by about 100,000 b/d to 57.7m b/d in March, led by the US. But the IEA reduced the forecast for North American production for the second half of the year by 160,000 b/d on a steeper slowdown in US shale oil growth and more negative outlook for non-oil sands output in Canada .
“Lower oil prices and cuts in capital expenditure are starting to take their toll. The decreases in drilling rates and backlog of uncompleted wells point to slower production growth than previously expected,” the IEA said.