Energy Prospectus

Oil prices bounced higher on Wednesday on an upcoming meeting in Qatar to discuss an output freeze and on expectations of U.S. production declines. Oil rose after prices dropped about 2% the previous session. Sources at OPEC said a meeting of producers led by Saudi Arabia and Russia to discuss an output freeze will take place on April 17, even without Iran. But analysts said that talks about freezing output would do little to rein in a global glut that sees over 1 million barrels of crude produced every day in excess of demand.

West Texas Intermediate oil was sharply higher in North America trade on Wednesday, after data showed that oil supplies in the U.S. rose less than feared last week.

The U.S. Energy Information Administration said in its weekly report that crude oil inventories rose by 1.3 million barrels in the week ended March 11. Market analysts' expected a crude-stock rise of 3.4 million barrels, while the American Petroleum Institute late Tuesday reported a supply gain of 1.5 million barrels.

Supplies at Cushing, Oklahoma, the key delivery point for Nymex crude, rose by 545,000 barrels last week, the EIA said. Total U.S. crude oil inventories stood at an all-time high of 523.2 million barrels as of last week. [Total storage capacity in the U.S. is approximately 640 million barrels. - Dan]

The report also showed that gasoline inventories decreased by 0.7 million barrels, compared to expectations for a drop of 2.4 million barrels, while distillate stockpiles fell by 1.1 million barrels.

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"Many investors are irrationally afraid of Iran entering the global oil markets after the lifting of sanctions. However, despite these fears, looking at the numbers paints a different picture. Iran has focused on ramping up production but might be willing to get behind a production cut because of the potential earnings. At the same time, oil demand is focused to consistently grow while oversupply has begun to fall. That means that even without any production cut and under the worst case scenario of Iran increasing production, a recovery should occur in the next year or two. For these reasons, I don't expect Iran to crash the world oil markets."

IEA expects global demand for hydrocarbon based liquid fuels (90% from crude oil) to increase by 2,000,000 barrels per day from Q12016 to Q32016.