The Single Largest Supply Risk In Oil Markets
Venezuela could be the reason that “tips the market decisively into deficit,” the International Energy Agency said in a new report.
Venezuela lost another 60,000 barrels per day (bpd) in February, according to the Paris-based energy agency, and continues to present the largest supply risk to the global oil market. The IEA noted that even if Venezuela’s production levels hadn’t cratered over the past year, and it produced at the agreed upon level as part of the OPEC deal, the group would still be posting close to a 100 percent compliance level. As it stands, however, Venezuela’s plummeting output put the cartel’s compliance rate closer to 150 percent, the highest figure to date.
Aside from that, the IEA said that not much has materially changed over the past month, but expressed a more bullish outlook towards the market for 2018. Oil inventories happened to climb in January for the first time since July 2017, but only increased by 18 million barrels, or about half of the usual rate for that time of year. In fact, the oil surplus only stood at 50 million barrels, while refined product supplies are actually in a deficit.
The agency slightly revised up its forecast for oil demand for 2018 by 90,000 bpd to 1.5 million barrels per day (mb/d). Demand is particularly strong in China and India. Supply is still expected to grow by 1.3 mb/d in the U.S., a huge figure, but unchanged from previous forecasts. Non-OPEC supply is expected to grow by 1.8 mb/d.
The IEA says that “market re-balancing is clearly moving ahead with key indicators – supply and demand becoming more closely aligned, OECD stocks falling close to average levels, the forward price curve in backwardation at prices that increasingly appear to be sustainable – pointing in that direction.” Inventories are expected to see a “very small stock build” in the first quarter, but then decline for the rest of the year.
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