London
- Despite OPEC’s
near perfect implementation of production cuts aimed at clearing the surplus,
the International Energy Agency said.
While cutbacks by OPEC and Russia since January have
brought world markets “very close to balance” and should deplete stockpiles in
the second quarter, inventories nonetheless expanded “marginally” because of
production increases just before the deal took effect, the IEA said in its
monthly report on Thursday. The agency lowered estimates for global demand
growth because of weaker than expected economic activity in India and Russia.
Crude prices rallied last year as the Organization of
Petroleum Exporting Countries and Russia announced their joint effort to end a
three-year oil glut, yet gains have stalled on signs the cuts aren’t working
quickly enough and are encouraging rival US shale drillers to fill any
shortfall.
“Global stocks might have marginally increased in the first
quarter,” said the Paris-based agency, which advises most of the world’s major
economies on energy policy. While “this might be surprising as it comes after
the implementation of OPEC output cuts,” it reflects the group’s export surge
late last year.
US crude futures traded 7 cents higher at $53 18 a barrel on
the New York Mercantile Exchange as of 12:31 p.m. London time. Oil inventories in the 34 nation
Organization for Economic Cooperation and Development increased by 38.5 million
barrels in the first quarter to about 3 billion barrels, offsetting the decline
in emerging economies.
Read also: Global oil stocks on the rise again
“Inventories are the barometer of global oil market
re-balancing,” said Neil Beveridge, an analyst at Sanford C. Bernstein &
Co. “Despite OPEC cuts, global inventories showed a bigger than expected build
in the first quarter. Recent data however points to sharp inventory declines in
the second quarter as the delayed impact of OPEC cuts finally starts to filter
through.”
Inventory Outlook
Stockpiles will decline by about 1.2 million barrels a day
in the second quarter if the group maintains current output levels, and by 1.6
million a day if it extends the curbs into the second half, the IEA’s data
indicates.
The IEA trimmed forecasts for global oil demand growth this
year by about 100 000 barrels a day to 1.3 million a day, or 1.4 percent, as a
result of weaker OECD consumption and economic activity in India and Russia “slowing abruptly.”
OPEC achieved 99 percent of its promised supply reduction
through March as Saudi Arabia,
along with Kuwait, Qatar and Angola,
cut more than required, making up for lagging compliance in Iraq and the United Arab Emirates.
The group’s output dropped by 365 000 barrels a day to 31.68
million a day, the IEA said. OPEC’s 11 partners in the accord delivered 64
percent of their pledged cuts, their strongest adherence since the deal began.
Non-OPEC Growth
Saudi Arabia,
OPEC’s biggest producer, is said to favour extending the supply curbs when the
group meets next month, in line with the views of fellow members such as Kuwait and Venezuela.
While such a decision would reduce oil inventories and
support prices, it would “offer further encouragement to the US shale sector
and other producers,” the IEA said.
The agency boosted estimates for growth in non-OPEC supplies
this year by 90 000 barrels a day to 485 000 a day amid “robust activity in the
US” Drilling has more than doubled since May, as the price recovery draws
investment back to the nation’s shale-oil industry, data from Baker Hughes Inc shows.