Energy Prospectus

The IEA's monthly Oil Market Report came out on March 15th. You can read the highlights here: https://www.iea.org/oilmarketreport/omrpublic/

Oil trades on a global market (unlike natural gas, which is regional). I like the IEA's global point of view. The report seems to have calmed the speculators (who set the oil price), telling them that U.S. crude oil inventory build was expected. I tell you this week after week in my podcast.

IEA Conclusion: "The market needs time for the full impact of the big supply cuts under the (OPEC and Russian) output reduction agreements to be felt. We do not predict OPEC production per se, but if current production levels were maintained to June when the output deal expires, there is an implied market deficit of 500,000 barrels per day for 1H17, assuming, of course, nothing changes elsewhere in supply and demand. For those looking for a re-balancing of the oil market the message is that they should be patient, and hold their nerve. In the meantime, the volatility that suddenly broke out last week will probably recur, as the IEA has regularly warned."

[b]What I have been trying to communicate in my podcasts is that the impact of the OPEC production cuts will not show up until April. Nothing has changed in my view and the IEA report confirms it for me.[/b] U.S. oil production is rising, but outside of the United States non-OPEC production is flat and actually still on decline in most countries. Demand always picks up in the Spring and accelerates in the Summer. You can see it in the chart on the link above.

Saudi Arabia’s energy minister Khalid al-Falih said in a Bloomberg interview that OPEC would be prepared to extend the production cuts “if it’s needed.” He said that if inventories are still above the five-year average by June, or if the markets are still not confident, then an extension would be warranted. “We would signal to them that we are going to do what it takes to bring the industry back to a healthy situation.” OPEC will meet in May to assess market conditions and discuss their plans. Al-Falih also said that the market shouldn’t “pass judgement” on non-OPEC countries like Russia and Kazakhstan who have not yet reduced their output to their targeted levels. He said they are “fully committed” to living up to their end of the deal. His comments provided more assurance to the market after recent reports suggested he has become “fed up” with non-compliance from Iraq and Russia, in particular. In short, al-Falih’s comments provided further evidence that OPEC is willing to extend its deal through the end of the year.

Something all EPG Members need to remember: There are no other countries that can move production up or down like Saudi Arabia, especially Russia. The fact that Saudi Arabia has cut production by more than the amount in the OPEC Agreement tells me that they are fully committed to do whatever it takes to stabilize oil prices at a much higher level.