IEA says oil price 'tide will turn'

The IEA said today that while an oil price recovery may not be "imminent" the "signs are mounting that the tide will turn". "Opec's embrace of market forces last November is a game changer", it added.

In its first Oil Market Report (OMR) of 2015, the OECD's energy watchdog does not change its lacklustre outlook for demand growth but is far more bullish than Opec was yesterday in its monthly report on the impact of the price fall on non-Opec production.

The report says that the sell-off has reduced its expectations of 2015 non-Opec supply growth by 350,000 b/d to 950,000 b/d. Yesterday, Opec cut its forecast by just 80,000 b/d to 1.28mn b/d. The IEA sees Colombia's growth trimmed by 175,000 b/d, and Russia's by 30,000 b/d. Canada's growth will be cut by 95,000 b/d and US light tight oil by 80,000 b/d.

The IEA all but holds its 2015 demand growth forecast at 900,000 b/d, against just 600,000 b/d for 2014, putting 2015 demand at 93.3mn b/d.

But the change in the non-Opec production outlook means that the IEA lifts its forecast for call on Opec crude.

By the end of this year, the call is assessed at 29.8mn b/d. With Opec having held its agreed production target at 30mn b/d when it met in late November, the IEA numbers will be taken as evidence that the plan pushed by Saudi Arabia and its allies to allow prices to fall in order to squeeze non-Opec production is working. But with stocks still building rapidly, it will be the second half of the year before rebalancing occurs.

For the whole of 2015, the IEA now puts call on Opec crude at 29.2mn b/d, reversing a cut it made in its December OMR, and higher than Opec's own trimmed forecast yesterday of 28.8mn b/d.

In the commentary to its report, the IEA said: "How low the market's floor will be is anybody's guess." The fall in production growth for US light tight oil is currently limited by hedging programmes, it added.

The demand response to low prices is proving elusive, the OMR said. Weak underlying economics are a major limiting factor to which are added weak consumer country currencies, subsidy cuts, tax hikes and deflationary concerns in some countries.

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