Global output falling despite higher OPEC production; Wells Fargo’s Read looks for a deficit 2H2016

The International Energy Agency released its Oil Market Report for February, showing lower levels of production globally, despite higher output from members of OPEC. According to the release from the IEA today, global oil supply dropped 0.2 MMBOPD to 96.5 MMBOPD despite a production increase of 0.28 MMBOPD from OPEC.

Non-OPEC supplies slipped 0.5 MMBOPD in the first month of the year, with the IEA forecasting producers outside of OPEC lowering production by 0.6 MMBOPD for 2016 as a whole.

OPEC production continued to increase with the return of Iran to global markets with the group producing 32.63 MMBOPD in January, 1.7 MMBOPD higher than the same time last year. Saudi Arabia and Iraq also added to the supplies brought back to market by Iran, following the end of international sanctions.

OECD commercial stocks built by 7.6 MMBO in December due to a mild winter to stand at 3,012 MMBO, 350 MMBO above average. The IEA reported that preliminary data suggests another build to stocks in the month of January.

Global oversupply may not be as drastic as IEA report suggests

Global oversupply may not be as bad as the IEA’s report suggests, however, according to a note today from Roger Read at Wells Fargo Securities. While markets clearly remain oversupplied, it is likely not at the 2 MMBOPD level the IEA believes.

The “oversupply during Q1 2016 does not compute with the reported data and the IEA’s prior projections of similar levels of oversupply,” said Read. “Based on reported inventory data, the global oversupply peaked at 1.16 MMBOPD in Q1 2015 and declined to 0.87 MMBOPD in Q4 2015.” With non-OPEC production expected to continue falling, Read believes the oversupply will transition to a deficit by the second half of this year.


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