THE oil market is beginning to rebalance due to higher than expected demand, and disruptions to supply, the International Energy Agency (IEA) reports, though it warns that the industry’s enormous stockpiles of oil are likely to dampen a significant rise in prices.
Prices have begun to rally since January when they fell to below US$28, their lowest level since 2003, reaching a yearly high in June of US$51/bbl. Disruptions to production caused by wildfires in Canada and militant action in Nigeria, alongside reductions brought about by oil companies cutting back on activity to balance the books, have reduced supplies by 800,000 bbl/d to 95.4m bbl/d in May. The IEA says this is the first significant drop since 2013.
In tandem, the IEA says that growth in demand has been significantly higher than expected. Data for the first quarter of this year shows a year-on-year growth of 1.6m bbl/d compared to its earlier estimate of 1.2m bbl/d.
The IEA says that assuming growth in demand continues at 1.3m bbl/d with modest increases in output, the oil market could balance in the second half of this year and continue into 2017. However, it warns that stockpiles of oil climbed to 3,065m bbl in April, described as an “impressive” rise of 222m bbl from a year earlier.
“The oil market looks to be balancing; but we must not forget that there are large volumes of shut-in production, mainly in Nigeria and Libya, that could return to the market, and the strong start for oil demand growth seen this year might not be maintained,” the IEA reports. “In any event, following three consecutive years of stock build […] there is an enormous inventory overhang to clear. This is likely to dampen prospects of a significant increase in oil prices.”
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