OPEC Oil Production Rising, Non-OPEC Falling: IEA

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The International Energy Agency (IEA) issued its monthly Oil Market Report on Tuesday morning. In the February, report the IEA said that January’s global crude oil supply declined by 200,000 barrels a day compared with January 2014 supply and averaged 96.5 million barrels a day. That is 1.1 million barrels a day more than in the fourth quarter of 2014 but lower than the 97.07 million barrels a day of supply at the end of December 2015.

The IEA’s global demand growth for 2016 is forecast at 1.2 million barrels a day, unchanged from last month’s report. Fourth-quarter 2015 demand fell by 50,000 barrels a day sequentially.

OPEC production rose to 32.63 million barrels a day in January, according to the IEA, an increase of 1.7 million barrels a day compared with January 2015. Non-OPEC supply dropped by 500,000 barrels a day in January compared with the previous month. For the full-year, IEA expects non-OPEC production to fall by 600,000 barrels a day to 57.1 million barrels.

Here are some comments from the IEA’s report:

Persistent speculation about a deal between OPEC and leading non-OPEC producers to cut output appears to be just that: speculation. It is OPEC’s business whether or not it makes output cuts either alone or in concert with other producers but the likelihood of coordinated cuts is very low. This removes one driver of bullishness.

Another widely-held view is that OPEC production, other than Iran, will not grow as strongly in 2016 as it did in 2015. Although it is still early in the year, Iraqi output in January reached a new record and it is possible that more increases could follow. Iran has ramped up production in preparation for its emergence from nuclear sanctions and preliminary data suggests that Saudi Arabia’s shipments have increased. Thus, another driver might be removed.

Another driver of bullishness is that oil demand growth will receive a boost from the collapse in oil prices to below $30/bbl. We retain our view that global oil demand growth will ease back considerably in 2016 to 1.2 mb/d – at 1.2% still a very respectable rate – but our analysis so far sees no evidence of a need to revise it upwards. Estimates by the International Monetary Fund that global GDP growth in 2016 will be 3.4% followed by 3.6% in 2017 is heavily caveated with risks to growth in Brazil, Russia and of course slower growth in China. Economic headwinds suggest that any change will likely be downwards.

Markets have reacted to Tuesday’s IEA report by raising the price of West Texas Intermediate crude by about 0.5% to trade at around $29.84, after closing at $29.69 on Monday. The price rose as high as $30.61 before pulling back.