Crude oil prices are continuing to rally primarily garnering support from this week’s projection of a decline in U.S. oil shale production for the month of May. In addition last night’s American Petroleum Institute (API) inventory snapshot was supportive compared to the industry projections (see below for a more detailed discussion). Today’s Energy Information Administration (EIA) report does raise a concern showing the largest monthly increase in OPEC production since June of 2011 while saying that pockets of demand have emerged but it is too early to say whether or not they will last. For the moment the market remains in an embrace anything bullish and discount anything bearish mode.
Yesterday Iran’s Zarif said nuclear talks will resume on April 21 at the deputy level, during a visit to Madrid. At some point if talks are successful heading into the June 30 deadline the prospects of additional Iranian oil flowing into the market will have a bearish impact on the price of oil. Iran has already started jawboning that OPEC should cut production by 5% at its June meeting. As I have discussed several times this is going to be one of the most interesting and important meetings for OPEC.
The IEA released its latest monthly oil forecast today. As a reminder that the world is still awash in oil the IEA reported that OPEC raised output by 890,000 bpd to 31.02 million bpd in March or the largest monthly gain since June of 2011. The IEA went on to say that recent developments thus may call into question past expectations that supply and demand responses would tighten the market from mid-year on. Stronger-than-expected 1Q15 demand might signal a faster recovery -- as would a faster-than-expected decline in North American unconventional supply -- but might just as likely point to a slower one if pockets of demand strength prove short-lived and lead to weaker deliveries later on. Advances in talks on Tehran's nuclear program not only call into question past working assumptions on future Iranian output, but may already have encouraged other producers to hike supply and stake out market share ahead of Iran's potential return.
All in all, that suggests the market rebalancing may still be in its early stage.
Here are the highlights.
• Oil futures prices eased in March, pressured by sharply higher supplies from Middle East OPEC producers and a relentless build in US crude stocks as refiners in Europe and Asia prepared for maintenance. At the time of writing, ICE Brent was trading at roughly $58.25/bbl - some 50% below last June's peak. NYMEX WTI was around $52.35/bbl.
• The forecast of global oil demand for 2015 has been raised by 90 kb/d to 93.6 mb/d, a gain of 1.1 mb/d on the year. The notable acceleration on 2014's 0.7 mb/d growth follows cold temperatures in 1Q15 and a steadily improving global economic backdrop.
• Global supply rose by an estimated 1 mb/d month-on-month in March, to 95.2 mb/d, as OPEC production recorded its highest monthly increase in nearly four years. Annual gains of a whopping 3.5 mb/d were split between OPEC and non-OPEC production.
• OPEC crude oil output soared by 890 kb/d in March, to 31.02 mb/d, on sharply higher Saudi Arabian, Iraqi and Libyan supplies. The 'call on OPEC crude and stock change' was revised marginally higher for 2H15, to 30.35 mb/d, above the group's official production ceiling, but left unchanged for 2015 versus last month's Report, at 29.5 mb/d.
• OECD industry stocks slipped by 1.7 mb in February, despite a massive 36.4 mb build in crude oil stocks. Preliminary data show OECD inventories rising counter-seasonally in March, by 29.2 mb, as US crude holdings extended recent builds and refined products defied seasonal trends.
• Global refinery crude demand is expected to fall seasonally to 77.3 mb/d in 2Q15, from 78 mb/d in 1Q15. While Atlantic Basin refiners mostly completed turnarounds in 1Q15, Asian refinery maintenance is set to ramp up sharply in 2Q15, with up to 2.5 mb/d of distillation capacity offline at its peak in May.
Global equities were slightly lower over the last twenty four hours. The EMI Global Equity Index declined by 0.09 percent with the year to date gain hovering around 11%. Global equities were a neutral for the oil complex over the last twenty four hours.