MARKET WATCH: Crude prices rise on IEA report forecasting lower supply, static demand growth

Crude oil prices on the New York and London markets appeared to be rising on Mar. 11 following a report from the International Energy Agency stating “there are signs that prices may have bottomed out.”

In IEA’s Oil Market Report for March, the Paris-based agency cites several factors supporting the higher prices of recent weeks, including supply outages in Iraq, Nigeria, and the UAE; signs that supply outside the Organization of Petroleum Exporting Countries is falling; no reduction in the agency’s demand growth forecast; and recent weakness of the US dollar.

Crude production from Iraq, Nigeria, and UAE fell in February by 350,000 b/d, the report indicates. “Meanwhile, Iran’s return to the market has been less dramatic than the Iranians said it would be. In February, we believe that production increased by [220,000 b/d] and, provisionally, it appears that Iran’s return will be gradual.”

Regarding the prospect of a production freeze agreement among major producers, IEA said, “We cannot know what this might be and in any event it is rather unlikely that an agreement will affect the supply-demand balance substantially in the first half of 2016.”

Prices were pushed down on Mar. 10 as it appeared increasingly unlikely that such a meeting will take place (OGJ Online, Mar. 10, 2016).

IEA expects US output to fall 530,000 b/d this year, and overall non-OPEC output to fall 750,000 b/d, which is higher than the 600,000 b/d the agency projected last month.

Global oil demand growth, meanwhile, is projected to remain unchanged from previous forecasts at 1.2 million b/d, with total demand in the US staying flat. However, IEA notes that “if prices maintain their recent upward momentum, there could be further weakness.”

In China, demand growth this year is still anticipated at 330,000 b/d, well-below the 10-year average growth rate of 440,000 b/d. IEA expects India and other smaller Asian economies outside the Organization for Economic Cooperation and Development and the Middle East to provide most of the 2016 growth.

“The foundations for global demand growth are sound, but not rock-solid,” the agency said.

The report concludes that implied surplus of supply over demand for this year’s first half remains high at 1.9 million b/d in the first quarter and 1.5 million b/d in second quarter.

“To the extent the oil price is forward-looking, comfort will be taken from our view that in the second half of 2016 the gap between supply and demand narrows significantly” to 200,000 b/d in both the third and fourth quarters, IEA said.

Energy prices

The April crude oil contract on the New York Mercantile Exchange dropped 45¢ to $37.84/bbl on Mar. 10. The May contract lost 67¢ to $39.40/bbl.

The NYMEX natural gas contract for April increased 3.6¢ to a rounded $1.79/MMbtu. The Henry Hub gas price for Mar. 10 was $1.70, gaining 13¢.

Heating oil for April delivery fell 1.66¢ to a rounded $1.22/gal. The price for reformulated gasoline stock for oxygenates blending for April decreased 3.15¢ to a rounded $1.44/gal on Mar. 8.

The Brent crude contract for May on London’s ICE declined $1.02 to $40.05/bbl. The June contract fell 97¢ to $40.68/bbl. The ICE gas oil contract for March sat unchanged at $362.75/tonne.

The average price for OPEC’s basket of 12 benchmark crudes was $35.23/bbl, rising 18¢.

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