Energy Prospectus

Below are the bullet points at the beginning of the summary for the report. Read full summary here: https://www.iea.org/oilmarketreport/omrpublic/

> Global oil supply in January edged lower to 97.7 mb/d but was 1.5 mb/d above last year as rebounding US production underpinned non-OPEC output growth.

> OPEC crude oil production in January was steady month-on-month (m-o-m) at 32.16 mb/d. Higher Nigerian output offset losses elsewhere. Compliance with supply cuts reached a new high of 137%.

> Non-OPEC output dropped by 175 kb/d in January, to 58.6 mb/d, but was 1.3 mb/d higher than a year ago

> US crude output, up 1.3 mb/d year-on-year (y-o-y), will soon overtake Saudi Arabia and could catch Russia by the end of the year.

> Compliance with output cuts by non-OPEC countries (group lead by Russia) was 85%.

> Global oil demand growth for 2018 has been increased slightly to 1.4 mb/d, partly due to an optimistic GDP forecast from the IMF. This is down from last year’s gain of 1.6 mb/d, as higher oil prices, shifting Chinese demand patterns and fuel switching in non OECD countries slows growth. < I expect IEA to keep raising their demand forecast for this year because they have a long history of being too conservative in their initial demand forecast each year.

> OECD commercial stocks fell in December by 55.6 mb, the steepest drop since February 2011, to reach 2 851 mbStocks drew by 154 mb (420 kb/d) during 2017 and ended the year 52 mb above the five-year average. In 4Q17, stocks fell sharply by 1.3 mb/d across the OECD. < The "glut" is almost gone.

> After reaching an all-time high in 4Q17, global refining throughput is expected to slow by 0.4 mb/d in 1Q18 to 81.1 mb/d due to seasonal maintenance, primarily in the US and Middle East. A strong rebound is expected in April-May as runs ramp up to meet increased seasonal demand and to replenish product stocks. < My SWAG is that demand will surge by more than 2.0 million barrels per day in Q2 (compares to last year's surge if 2.3 million barrels per day).

The initial reaction to the IEA is usually negative despite rather bullish supply/demand "facts" since in their comments they warn that rising U.S. oil production could exceed demand.

Personally, I think the IEA likes to "hedge their bets" and I think they have a agenda to keep fuel prices low if they can. I also think IEA is making the same mistake that EIA is making; they take a few short months of production growth and project that growth to continue. As I have posted here many times, U.S. producers ALWAYS complete a lot more wells at year-end, so they can include them in their year-end reserve reports. Plus, harsh weather in Q1 always slows down completion activity.

The Last Hedge Fund Standing by Phil Flynn at 8:24AM ET

Oil Hedge funds continue to run for the exits and they are in part responsible with yesterday’s late day swoon. Yet, despite market turmoil the supply versus demand fundamentals for oil continue to be very bullish. Even the International Energy Agency (IEA), that hates to say anything bullish about oil, is acknowledging that despite their prior doubts, OPEC and their Non-OPEC coconspirators have succeeded in removing the global oil glut.

The IEA was once again forced to raise its forecast for oil demand growth in 2018 to 1.4 million barrels per day, from a previous projection of 1.3 million bpd. Yet they acknowledge that oil demand grew at a rate of 1.6 million bpd in 2017, so they expect a demand drop even though global growth is stronger than it was last year.

As I have written before, the IEA seems to always have to raise their demand forecast because they generally underestimate demand. Perhaps it is because they represent the consuming nations and they do not want to say anything that may raise prices.

The IEA was widely criticized for their pronouncement that shale oil production would explode, which of course is a little too hyperbolic for a major agency to say. In this report they toned down their rhetoric but still said that “U.S. producers are enjoying a second wave of growth so extraordinary that in 2018 their increase in liquids production could equal global demand growth.” Yet, because they always underestimate demand they will be wrong again. If they were right in their previous forecasts, then global inventories would be rising, not falling globally by the fastest rate in almost 6 years.

We think that oil is poised to move higher. The hedge funds have been mostly shaken out and the reality of falling supply and surging demand will help us find a base for the next leg higher.

Reuters: Surge in global oil supply may overtake demand in 2018:
The rise in global oil production, led by the United States, is likely to outpace growth in demand this year, the International Energy Agency said on Tuesday. The Paris-based IEA raised its forecast for oil demand growth in 2018 to 1.4 million barrels per day, from a previous projection of 1.3 million bpd, after the International Monetary Fund upped its estimate of global economic growth for this year and next. Oil demand grew at a rate of 1.6 million bpd in 2017, the IEA said in its monthly market report. However, the rapid rise in output, particularly in the United States, could well outweigh any pick-up in demand and begin to push up global oil inventories, which are now within sight of their five-year average. “Today, having cut costs dramatically, U.S. producers are enjoying a second wave of growth so extraordinary that in 2018 their increase in liquids production could equal global demand growth,” the IEA said. “In just three months to November, (U.S.) crude output increased by a colossal 846,000 bpd and will soon overtake that of Saudi Arabia. By the end of this year, it might also overtake Russia to become the global leader.”


CNBC: 'Extraordinary' growth in US shale oil could soon force OPEC to take action, IEA says.
The relentless rise of U.S. shale growth could soon spark another dramatic change of policy from leading oil producers, according to the latest monthly report from the International Energy Agency (IEA). "U.S. producers are enjoying a second wave of growth so extraordinary that in 2018 their increase in liquids production could equal global demand growth," the IEA said in its closely-watched report published Tuesday. "This is a sobering thought for other producers currently sitting on shut-in production capacity and facing a renewed challenge to their market share," the Paris-based organization added. In November 2014, the so-called U.S. shale revolution prompted OPEC to announce a new strategy geared towards improving its market share. Analysts interpreted this move as an attempt to squeeze higher-cost producers, including U.S. shale oil, out of the market. Market conditions in early 2018 seem to be reminiscent of that first wave of U.S. shale growth, prompting the IEA to warn history could be repeating itself.