Waving not drowning?

Author Toby Shelley

An unexpected lifebelt for the flounderers in Opec came from the IEA today. Yesterday’s Opec monthly report was grim reading for the less financially endowed producing countries, indicating no pick-up in demand growth, higher Opec output and, crucially, only a modest cut in non-Opec output growth expectations that was subsumed by a major uprating of estimated 2014 growth.

An unexpected lifebelt for the flounderers in Opec came from the IEA today. Yesterday’s Opec monthly report was grim reading for the less financially endowed producing countries, indicating no pick-up in demand growth, higher Opec output and, crucially, only a modest cut in non-Opec output growth expectations that was subsumed by a major uprating of estimated 2014 growth.

But today dawned bright and breezy with OECD’s energy watchdog, the IEA, slicing some 350,000 b/d off its non-Opec 2015 production growth forecast and leaving its 2014 estimate unchanged.

The first-quarter 2015 non-Opec supply forecast is trimmed by around 200,000 b/d, rising to 500,000 b/d in the third quarter. The Americas — both OECD Mexico, Canada and the US, and non-OECD countries — bear the brunt of the fall. In large part, this is because Americas’ heavy crude is vulnerable to plummeting prices, the IEA says. Light tight crude is proving more resilient, as expected, in part because of well-judged hedging programmes.

The IEA headlines the price collapse as the cause of the cuts in its non-Opec output forecast, but it should be noted that other factors are significant. In Colombia’s case, it’s the resurgence of civil war. And Russia’s troubles are manifold. “The low oil prices, sanctions‐related restrictions on technology and financing and the declining rouble all present severe challenges to Russia’s oil sector, exacerbating the overall effect of natural declines at the country’s brownfields,” the IEA says. Russian production is now seen falling by 140,000 b/d this year, against the 110,000 b/d drop seen in last month’s forecast.

But, whatever the relative weight of the contributing factors, the IEA’s reversal of its December cut to the 2015 call on market crude forecast looks powerfully like an endorsement of Opec’s decision to leave its ceiling in place. The second-half 2015 call is now put at 29.8mn b/d — “just shy of Opec’s official target of 30mn b/d”.

“Signs are mounting that the tide will turn”, says the IEA. Having cajoled his Opec colleagues into agreeing to watch the waters wash around their feet rather than try to hold back the waves of weak demand and oversupply, Ali Naimi might adopt the handle #Canute. But the chances of non-Opec producers coming to the negotiating table, an invitation Opec’s secretariat reiterated today , remains distant.

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