IEA Sees Crude Prices 'Bottoming Out'
International crude oil prices show signs of ”bottoming out” after “recovering remarkably in recent weeks,” energy watchdog International Energy Agency said March 11. From a nadir of $28.5/bbl in mid-January, Brent crude is now trading around $40/barrel. “This should not, however, be taken as a definitive sign that the worst is necessarily over,” it said.
It does not place much weight on the possibility of concerted action by oil producers to curb output as nobody wants to cede ground, but more generally it sees that market forces – ahead of any production restraint initiative – are “working their magic and higher cost producers are cutting output.” But as prices rise, some capacity in the US will become profitable again and rigs will move back into production, capping the extent of the recovery.
And Iran's return to the market has been less dramatic than the Iranians said it would be. The IEA says it produced 220,000 b/d more in February and, “provisionally, it appears that Iran's return will be gradual.”
Other bullish factors include: supply outages in Iraq, Nigeria and the UAE that cut 350,000 b/d; signs that non-Opec supply is falling; no reduction in the IEA’s forecast of oil demand growth; and the recent weakness of the US dollar.
US output is forecast to fall by 530,000 b/d, and the IEA has also downgraded its 2016 outlook for Brazil, Colombia and others. For the non-Opec countries it now expects production to fall by 750,000 b/d, while in February its view was less: 600 kb/d.
It has left unchanged at 1.2 mb/d its estimate for growth in 2016. Many reports claim that strong demand for US gasoline is a factor behind recent price bullishness but the IEA says these overlook weakness in other products such as middle distillates. “Our view is that total demand in the world's biggest market will be flat in 2016, but if prices maintain their recent upward momentum there could be further weakness,” it says.
Most of the growth will come from India and the Middle East and smaller OECD economies. “The foundations for global demand growth are sound, but not rock-solid,” it said.