Energy Prospectus

OPEC's Production Down AGAIN in March

> Venezuelan Production Reaches Record Low of 1,488,000 BOPD, which is 31% below 2016’s daily output

OPEC released this month’s Monthly Oil Market Report yesterday, outlining the cartel’s assessment of the state of the international oil industry.

Total OPEC oil production fell sharply in March, with many countries reporting declines. The cartel produced 31,958 MBOPD in March, down 201.4 MBOPD from February output. This is the largest reported single month decline since the group’s output cut was first implemented in January 2017.

International Energy Agency's Oil Market Report was released Friday morning (4/13/2018), a few days earlier than I was expecting. Here are the highlights (my comments in blue):

> Our forecast for global oil demand growth for 2018 is unchanged from last month's report at 1.5 mb/d. OECD demand in 1Q18 was revised up by 315 kb/d, partly due to cold weather in the US and the start-up of a petrochemical project. There are offsetting reductions to growth in 2Q and 3Q. < IEA has a long-standing habit of starting off the year with a low demand forecast and revising it upward as we move through the year. My SWAG is that YOY demand growth ends up at ~1.8 million barrels per day.

> Non-OECD demand in 1Q18, by contrast, has been revised down by 260 kb/d due to weak Chinese data. India's early 2018 growth is strong at 380 kb/d y-o-y in the first two months.

> Global oil supply eased by 120 kb/d in March, to 97.8 mb/d, after OPEC and non-OPEC producers deepened their cuts to 2.4 mb/d. Output was nevertheless 1.4 mb/d higher than a year ago mainly due to higher US production. Non-OPEC supply is set to grow by 1.8 mb/d in 2018.

> OPEC crude production fell by 200 kb/d in March, to 31.83 mb/d, on further declines in Venezuela and lower output in Africa. Compliance with the output deal reached 163%. The call on OPEC crude and stocks will hover around 32.5 mb/d for the rest of this year. < My take is that OPEC countries have very little if any production capacity in excess of what they are producing today. If they did, why are most of them producing below their agreed to limits?


> OECD commercial stocks declined by 26 mb to 2 841 mb and were just 30 mb above the five-year average at end February. < Less than one days supply for OECD countries. The average could be reached by May, on the assumption of tight balances in 2Q18. Product stocks are already in deficit.

> ICE Brent futures averaged $66.72/bbl in March and in recent days have risen above $70/bbl to levels not seen since December 2014. Tension in the Middle East is a key factor alongside tighter compliance with the OPEC/non OPEC output deal.

> After 1Q18's peak refinery maintenance in Europe and the US, global throughput will see a seasonal ramp-up in 2Q18. From March to July, runs will increase by 3.1 mb/d, but supply of refined products will lag behind demand growth.

Conclusion: OECD oil and refined products will go below the 5-year average before the end of June. On a "days of supply" basis, they are already below the 5-year average. May - September is the PEAK DEMAND PERIOD and refiners are ramping up production of transportation fuels and sucking down crude oil inventories.

If WTI closes today above $67/bbl, there is a clear path to $75/bbl.

Read more comments from IEA's report here: https://www.iea.org/oilmarketreport/omrpublic/

See the charts: Note that the net declines in oil inventories keep getting larger each month.

IEA says 'mission accomplished' for OPEC as oil stocks shrink. Reuters.
OPEC and its allies appear to have accomplished their mission of bringing global oil stocks to desired levels, the International Energy Agency said on Friday, signaling that the markets could become too tight if supply remains restrained. The IEA, which coordinates the energy policies of industrialized nations, said global stocks in developed countries could fall to their five-year average - a metric used by OPEC to measure the success of output cuts - as early as May. “It is not for us to declare on behalf of the Vienna agreement countries that it is ‘mission accomplished’, but if our outlook is accurate, it certainly looks very much like it,” the IEA said in its monthly report. Vienna-based OPEC has reduced production in tandem with Russia and other allies since January 2017 to prop up global oil prices, which soared above $70 per barrel this month, giving a new boost to booming U.S. shale oil output.


Oil Steadies as Geopolitical Risks Linger. Wall Street Journal.
Oil prices were mixed on Friday despite the International Energy Agency predicting robust oil demand forecast for the full year. Brent crude, the global benchmark, was up 0.3% at $72.26 a barrel on London’s Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.4% at $67.35 a barrel. In its closely watched monthly oil market report Friday, the IEA said it still expects the world’s appetite for oil to grow by 1.5 million barrels a day in 2018, helping to partly offset surging U.S. shale-oil growth. However, the agency, a Paris-based organization that advises governments and corporations on energy trends, warned that escalating trade tensions between the U.S. and China could weigh on global demand.