In its monthly Oil Market Report, the IEA reported slowing production and signs of increased demand in the future

Brent crude oil rose more than $2 to reach a high of $50.36 yesterday on news from the International Energy Agency (IEA) that there are signs of prices taking a turn up in the future. In its Oil Monthly Report (OMR), the IEA said, “How low the market’s floor will be is anybody’s guess. But the selloff is having an impact. A price recovery – barring any major disruption – may not be imminent, but signs are mounting that the tide will turn.”

Brent Spot 01 14 to 01 16

The message from the IEA that boosted prices was that low oil prices are starting to have an effect on production, lowering output around the globe. In the report, the agency said supply growth for 2015 is beginning to affect non-OPEC nations, with Canada and Colombia leading in declines. Growth for non-OPEC members in 2015 was downgraded from December’s OMR by 350 MBOPD and even more steeply for 2H’15. The report said cuts for U.S. light, tight oil production growth was only cut by 80 MBOPD from the previous month due to many producers being well hedged against short-term drops.

Signs of demand change have remained more elusive, however, according to the report. “With a few notable exceptions such as the U.S., lower prices do not appear to be stimulating demand just yet.” The IEA said this is due largely to weak underlying economic factors, but that demand growth was still expected to grow modestly in 2015. The report said that it did not expect demand growth to exceed 900 MBOPD, an unchanged estimate from the agency’s report in December.

OPEC output rose by 80 MBOPD in December to 30.48 MMBOPD with supplies from Iraq more than offsetting deeper losses in Libya. Iraqi supply surged to a 35-year high. Downward revisions to the non-OPEC supply outlook raise the ‘call’ on OPEC for 2H’15 to an average 29.8 MMBOPD.Demand Supply Balance IEA

The note from the IEA also mentioned that the OECD commercial inventories drew less than usual in November, falling by 8.7 MMBO to 2,697 MMBO. “As OECD refiners hiked runs, crude stocks drew while product stocks increased. Preliminary data indicate a 12.5 [MMBO] build in December, which would see stocks rise to their widest surplus versus the five-year average since August 2010.”

Despite indicators that supply and demand are headed towards a convergence, the IEA does not expect a return to the old status quo. “It is clear the market is undergoing a historic shift,” says the report. Even though the report indicates a turn for the better, the IEA still believes there is a “reckoning” in store for the industry.

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