Is oil market moving from balance into deficit?
Market demand is heading into balance in the second half of the year, should the Organization of the Petroleum Exporting Countries (OPEC) extend its production-cut agreement with other producers from outside the group for another six months after the agreement ends in June.
That has been the experts’ general message over the past few weeks. Moreover, a Reuters’ survey of 35 economists and analysts published on April 28 reached the same conclusion. The Reuters’ survey also forecast that Brent crude would average $57.04 a barrel in 2017.
But will the market indeed move into balance? There are two ways to look at this. First, to follow the official statements; and second, to look closely at the numbers from major organizations and reports from banks and research firms.
As for the official statements, there are a few officials who believe that the oil market is heading for a deficit, meaning that the size of demand for oil may outpace the amount supplied by producers.
One of the officials is the recently appointed Kuwait oil minister Issam Al-Marzooq. He said more than once over the past eight weeks that the oil market is headed for deficit as demand is expected to grow by 1.2 to 1.4 million barrels per day (bpd) this year, while supply might not catch up with that as many producers outside of OPEC do not invest to increase the capacity to meet this rise in demand.
The matter is complicated by the agreement between OPEC and 12 of its rival exporters, including Russia, to cut output by 1.8 million bpd. So as demand grows, supply will lag behind unless oil prices reach a level that motivates drillers in the US to move their rigs to drill new wells at a higher pace than the industry is seeing now.
Turning to the numbers from major organizations, it is clear that there is a mismatch. The International Energy Agency (IEA) said in its monthly report in April that oil demand worldwide stood at 96.6 million bpd, while supply was at 96.3 million bpd.
This is a deficit of 300,000 bpd in the first quarter of the year. Compliance with the pledged OPEC and non-OPEC cuts by the participating countries in the agreement is improving and demand is picking up in the US for the driving season. This could all contribute to both a higher deficit and higher oil prices.
Source: Arab News
