IEA says oil demand recovery set to slow for rest of 2020

By Noah Browning

LONDON (Reuters) – The International Energy Agency (IEA) trimmed its 2020 oil demand forecast on Tuesday, citing caution about the pace of economic recovery from the pandemic.

The Paris-based IEA cut its 2020 outlook by 200,000 barrels per day (bpd) to 91.7 million bpd in its second downgrade in as many months.

“We expect the recovery in oil demand to decelerate markedly in the second half of 2020, with most of the easy gains already achieved,” the IEA said in its monthly report.

“The economic slowdown will take months to reverse completely … in addition, there is the potential that a second wave of the virus (already visible in Europe) could cut mobility once again.”

Renewed rises in COVID-19 cases in many countries and related lockdown measures, continued remote working and a still weak aviation sector are all hurting demand, the IEA said.

China – which emerged from lockdown sooner than other major economies and provided a strong prop to global demand – continues a strong recovery, while a virus upsurge in India contributed to the biggest demand drop since April, the IEA said.

Increasing global oil output and the downgraded demand outlook also mean a slower draw on crude oil stocks which piled up at the height of lockdown measures, it added.

The agency now predicts implied stock draws in the second half of the year of about 3.4 million barrels per day, nearly one million bpd less than it predicted last month, with July storage levels in developed countries again reaching record highs.

However, preliminary data for August showed industry crude oil stocks fell in the United States, Europe and Japan.

As output cuts eased among producers from the Organization of the Petroleum Exporting Countries (OPEC) and allies such as Russia, global oil supply rose by 1.1. million bpd in August.

After two months of increases, recovery among countries outside the OPEC+ pact stalled, with production in the United States falling 400,000 bpd as Hurricane Laura forced shut-ins.

(Reporting by Noah Browning; editing by Jason Neely)

U.S. crude hits six-month high after IEA sees tighter supply

A natural gas flare on an oil well pad burns as the sun sets outside Watford City,

By Sarah McFarlane

LONDON (Reuters) – U.S. oil prices hit a six-month high on Thursday, supported by data from the International Energy Agency (IEA) showing tightening supply, in addition to a surprise drop in U.S. crude inventories.

West Texas Intermediate (WTI) U.S. crude futures <CLc1> were 58 cents higher at $46.81 at 1213 GMT, having earlier peaked at $46.92, their highest since Nov. 4.

Brent crude futures <LCOc1> were trading at $48.00 per barrel, up 40 cents from their last settlement and near a six-month high of $48.50 hit at the end of April.

“The catalyst for the rally today seems to have been the IEA report where they have said production is going to fall faster and demand is going to rise more strongly than we previously thought,” Tom Pugh, commodities economist at Capital Economics said.

The IEA on Thursday raised its 2016 global oil demand growth forecast to 1.2 million barrels per day (bpd) from its April forecast of 1.16 million.

It also noted that output from Nigeria, Libya and Venezuela is down 450,000 bpd from a year ago.

Analysts said that while the IEA data was helping to support prices, the gradual return of Canadian oil sands output and the expectation that prices are nearing levels that could trigger the return of some U.S. production might cap gains.

“The only thing that could throw a spanner in the works to prevent oil from rallying further would be the (U.S.) production,” said Ole Hansen, head of commodities research at Saxo Bank.

Traders said an expected increase in Canadian oil sands output following disruptions to over 1 million barrels of daily production capacity due to a wildfire was weighing on markets.

The U.S. Energy Information Administration (EIA) said on Wednesday that U.S. crude inventories fell by 3.4 million barrels to 540 million barrels last week, surprising analysts who had expected an increase of 714,000 barrels.

“With (refinery) runs recovering and production dropping, U.S. (crude) stocks should begin drawing steadily from now,” consultancy Energy Aspects said on Thursday.

“We estimate that North American inventories can fall by as much as 12 million barrels across May and June,” it said.

Kuwait’s acting oil minister said that recent price rises were fundamentally justified.

“Based on the decrease in production that has been shown in the last three weeks, I assume fundamentally the price represents the fall of production,” Kuwait’s Anas al-Saleh told Reuters on Thursday.

He also said that the Organization of the Petroleum Exporting Countries (OPEC), of which Kuwait is a member, would not seek price supporting market intervention during its next scheduled meeting on June 2, and instead it would focus on dialogue between its members.

At an April meeting, rivals Saudi Arabia and Iran could not agree on deal terms, triggering criticism that the producers’ cartel had lost its ability to act.

(Additional reporting by Henning Gloystein in Singapore and Osamu Tsukimori in Tokyo; editing by William Hardy and David Evans)

IEA expects OPEC production will fall this year

An oil pump jack can be seen in Cisco, Texas, August 23, 2015. REUTERS/Mike Stone

By Sarah McFarlane

LONDON (Reuters) – Crude prices firmed on Thursday after the International Energy Agency (IEA) said non-OPEC production would fall this year by the most in a generation and help rebalance a market dogged by oversupply.

IEA chief Fatih Birol said low oil prices had cut investment by about 40 percent over the past two years, with sharp falls in the United States, Canada, Latin America and Russia.

Benchmark Brent crude futures were up 12 cents at $45.92 a barrel by 1204 GMT. U.S. crude futures were 4 cents higher at $44.22. Both have gained about 70 percent from lows hit between January and February.

“It looks very strong at the moment, sentiment is bullish, technicals look fine, so I rather see prices rising further from here,” Commerzbank analyst Carsten Fritsch said.

The drop in supply from some producers, however, could be offset by increased output in countries such as Russia and Iran.

Russia’s energy minister said it might push oil production to historic highs and Iran has reiterated its intention to reach output of 4 million barrels per day after a global deal to freeze output collapsed and Saudi Arabia threatened to flood markets with more crude.

Libya could also rapidly ramp up oil production as soon as stability returns, the head of Libya National Oil Corporation (NOC) told an oil summit in Paris.

Nigeria will hold talks with Saudi Arabia, Iran and other producers by May, hoping to reach a deal on an output freeze at the next OPEC meeting in June, where it is expected to be a key item on the agenda.

“The focus of the market is primarily on price-supportive news and that’s just an indication of how sentiment is,” Saxo Bank senior manager Ole Hansen said.

Hansen said fund flows into commodities had been strong this week, driven by a weaker dollar.

The U.S. currency hit 10-month lows against some commodity-related currencies earlier this week. The Thomson Reuters Core Commodity Index rose to its highest since early December. [MKTS/GLOB]

“This whole recovery has been driven by supply being capped and supply is price sensitive and again we’re back to levels where we could see some of these producers breathe again,” Hansen said.

French bank BNP Paribas said any hope of the oil market rebalancing from the current surplus relied on a predicted decline in U.S. oil production.

“The U.S. accounts for the bulk of non-OPEC’s 2016 oil supply contraction of 700,000 barrels per day forecast. If the decline in the U.S. oil supply proves insufficient to tighten balances, then … the oil price will remain low,” it said.

In refined products, China’s exports of diesel and gasoline soared, spilling surplus fuel onto a market that is already well supplied, and threatening to cut Asian benchmark refining margins further.

(Additional reporting by Henning Gloystein in Singapore and Osamu Tsukimori in Tokyo; editing by David Evans and David Clarke)