Inventory declines have brought prices to three-year highs
The International Energy Agency (IEA) released its monthly Oil Market Report today, outlining the group’s analysis of the overall oil market.
In March 2018, OECD stocks declined by 27 million barrels to 2,819 million barrels – 214 million barrels below year-ago levels. This is the lowest level in three years, the IEA said.
Crude oil prices have risen by nearly 75% since June 2017. Because of rising prices, the IEA lowered its estimate for 2018 global oil demand growth by 40 MBPD to 1.4 MMBPD, and the agency has increased its expectations for U.S. oil production growth this year by 120 MBPD.
The DOE’s total crude oil inventory has fallen to 432,354 MBBL – down 17% from the 520,772 MBBL that was in storage at this point last year.
The IEA said to be “mindful” of current constraints that have manifested in the extraordinary widening of the differential between WTI prices at Midland and the Gulf Coast to $15/barrel. Several projects, such as NuStar Energy’s (ticker: NS) Permian Crude System Expansion No. Two and Plains All American Pipeline’s (ticker: PAA) Cactus II should help alleviate takeaway constraints.
Source: EnerCom Analytics
Iran and Venezuela contribute to production decline
Iran’s oil exports are currently at ~2.4 MMBPD, however, the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) will affect current production values. When sanctions were imposed in 2012, Iranian exports fell by ~1.2 MMBPD. Other signatories have said they will continue with the agreement, but the moving parts have not yet settled.
According to the IEA, neither Venezuela nor Mexico can raise short term output, but some of the 1.5 MMBPD that have been cut by other producers under the Vienna Agreement (generally referred to as the OPEC production cuts) might be made available to keep markets supplied.
By the end of 2018, Venezuela’s output could fall by several hundred thousand barrels per day. Venezuela produced 1,548 MBOPD in February, down 52.4 MBOPD from the previous month. The country has seen the lowest production rate in 30 years.
Source: EnerCom Analytics
The IEA’s April data shows that Venezuela’s production is 550 MBPD lower than its target under the Vienna Agreement, these production decreases exceed that of even Saudi Arabia. OPEC crude production eased by 130 MBPD in April, to 31.65 MMBPD, and the IEA said that compliance with the Vienna Agreement reached a record 172%.
The potential double production inadequacy by Iran and Venezuela could be a challenge for producers to fill the production gap, oil quality and price rises.
