In its monthly Oil Market Report for January released Friday morning, the International Energy Agency (IEA) said that global crude supplies dropped by 950,000 barrels a day to total 100.6 million barrels a day in December. Year over year, however, supply rose by 2.6 million barrels a day in 2018.
In IEA’s colorful description, “[T]he mood music in the global economy is not very cheerful.” Growth is expected to remain strong in the first half of the year before tailing off. Prospects for future economic growth can drive oil prices up or down as speculators place their bets on the future direction of crude prices.
The December agreement between the Organization of the Petroleum Exporting Countries and its partners (OPEC+) sent prices higher briefly before concerns about the global economy floated up and Brent crude prices fell by $10 a barrel. OPEC+ recently renewed their commitment to the production cuts and, according to IEA data, December production dropped by nearly 600,000 barrels a day. Earlier this month, Saudi Arabia indicated that it will chop production even further in January and in future months.
Calling the rebalancing of the crude oil market “more likely to be a marathon than a sprint,” IEA noted that Russia’s intentions are hazy. Russian production rose to a near-record 11.5 million barrels a day last month. Whether and by how much Russia will slow production in the months ahead has not been made clear.
U.S. crude oil production rose by 2.1 million barrels a day in 2018 and IEA expects an additional increase of 1.3 million barrels a day this year:
While the other two giants voluntarily cut output, the US, already the biggest liquids supplier, will reinforce its leadership as the world’s number one crude producer. By the middle of the year, US crude output will probably be more than the capacity of either Saudi Arabia or Russia.
On the demand side, IEA now projects demand growth will reach 1.3 million barrels a day for 2018 and is forecasting additional growth of 1.4 million barrels a day for 2019. Demand from developing countries, including China and India, rose by 1.15 million barrels a day last year, 62% of the global total. Demand from the developed nations of the Organisation for Economic Co-operation and Development is forecast to drop from 390,000 barrels a day in 2018 to 280,000 barrels a day in 2019.
Early Friday morning, West Texas Intermediate crude for February delivery traded at $52.57 a barrel, up about 0.9% compared with Thursday’s closing price of $52.07. Brent crude for March delivery traded up about 0.7% at $61.61 a barrel in London.