IEA sees tightening oil market in 2Q

The oil market is showing "signs of tightening" in the second quarter, but there are mixed signals on the outlook for demand and whether stock levels are yet "normal", the IEA said in its latest Oil Market Report (OMR).

OECD commercial inventories fell by 21.7mn bl in February from January after three months of increases, but they are 16mn bl above the latest five-year average, the IEA said. "However, in terms of days of forward demand cover, which is a more relevant assessment, they are below it, and have been for some time," the Paris-based energy watchdog said. "Preliminary data for March are mixed, as a build in Europe offset inventory falls in the US and Japan."

US inventories fell by 15.6mn bl and Japan's by 5.4mn bl in March from a month earlier, while European stocks grew by 26.9mn bl, the IEA said, citing preliminary data.

It has kept its 2019 global oil demand growth forecast unchanged at 1.4mn b/d, leaving total consumption at 100.6mn b/d this year. "In recent months, the resilience of demand has received less attention than the vicissitudes of production, but it is very important too," the IEA said. "We... accept that there are mixed signals about the health of the global economy, and differing views about the likely level of oil prices."

"Oil prices at $70/bl for Brent are less comfortable for consumers than they were at the start of the year and the IEA has regularly warned of the dangers of prices rising even higher. Only time will tell if our current demand forecast proves accurate, but the risks are currently to the downside," it said.

The report estimates global oil supply fell to 99.2mn b/d in March, down by 340,000 b/d from February. This was a result of the production cut deal between Opec and some non-Opec countries and falling output from Venezuela.

The IEA estimates that a compliance rate of 124pc was achieved by the production cut deal participants in March. "However, Opec is mainly responsible for this, with compliance at a remarkable 153pc compared to 64pc by the non-Opec countries. Russia continues to adjust output gradually," it said. "If the producers deliver on their promises, the market could return to balance in the second quarter of 2019."

The IEA forecasts non-Opec supply will increase by 1.75mn b/d this year, little changed from last month's projection.

It expects the call on Opec crude to increase to 30.9mn b/d in the second quarter this year from 30.5mn b/d in January-March. Citing secondary sources, including Argus, Opec said yesterday its March production fell by 534,000 b/d from February, to 30.02mn b/d.