The International Energy Agency (IEA) says the slow progress in reducing the world oil glut should come as no surprise.
In its widely watched monthly oil market report, the Paris-based energy watchdog for rich countries said that oil inventories for the OECD countries rose for the first time in six months in January, the latest month available, when they were 48 million barrels higher at just over 3 billion barrels.
On the supply side, the IEA estimated that compliance by Opec with its output deal was 98 per cent last month, although that was heavily reliant on cuts by Saudi Arabia.
By comparison, there was only about 37 per cent compliance for the 11 non-Opec member countries that joined in the deal.
But it also signalled caution, noting that the output deal was always going to take time to work its way through the large and complex world oil system.
“The market needs time for the full impact of the big supply cuts under the output reduction agreements to be felt,” the IEA said. “For those looking for a rebalancing 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.”
Oil prices have fallen by about 9 per cent in the past week, triggered by data showing rising oil inventories in the US and exacerbated by mixed signals from Saudi Arabia about its view on the market.
The kingdom’s energy ministry on Tuesday took the unusual step of issuing a statement to pledge its commitment to stabilising world oil markets, also to try to clarify confusing data about its level of output.
__________________________________
More oil coverage
■ Fuel for Thought blog: Saudi Arabia's communication problem
■ Saudi says committed to oil market stability despite production increase in February
■ Saudi Arabia tells Opec it raised output to 10 million bpd in February
■ Comment: I'll be back: oil's price slump is tough to kill
■ Analysis: Why mood shifted in the global oil market – and might shift again
__________________________________
Earlier in the day, the Opec secretariat reported that Saudi Arabia’s output climbed 263,000 barrels per day (bpd) last month to just over 10 million bpd, according to Saudi Arabia’s self-reported numbers.
But the ministry’s statement later in the day said that “supply to the market” fell last month by 90,000 bpd to 9.9 million bpd, although that implied its January “supply to market” was actually significantly higher than its self-reported output of 9.75 million bpd.
The confusion underlined the problems of communication that Saudi Arabia – and Opec more broadly – has had in trying to deliver a consistent message to the market.
“It’s very difficult to read [Saudi energy minister Khalid] Al Falih compared to [his predecessor, Ali] Al Naimi,” said Jason Tuvey, Middle East economist at Capital Economics in London.
“But based on his latest comments over the last week or so, two things are clear: his opposition to extending the output deal past June has diminished; also, the stuff about not accepting free riders on the deal, obviously pointing the finger at Russia.”
The Saudi dilemma has been to try to push prices to a level that would relieve pressure on his and allies’ economies, while not allowing to run so far that it encourages competitors to move aggressively back into the market.
In any case, oil prices recovered some ground on Wednesday to stand at US$51.91 per barrel by late afternoon Arabian Gulf time, up 99 cents.
The IEA said it still expects demand this year to grow by “a healthy” 1.4 million barrels per day, although it says it has changed its quarterly forecast to reflect demand growth coming later in the year than previously expected.
“The market is still dealing with a vast amount of past supply, which will take time to work its way through the system,” the report says. “The stock build should not … be much of a surprise.”
The IEA explains that Opec countries were “increasing relentlessly” their output ahead of the deal on November 30, surging collectively by about 580,000 bpd in the three months from September. “Export volumes are still appearing in storage around the world and, as part of this, US stocks are building,” it says. “The US is seeing a triple surge in supply: rising imports (exports are also growing), rising domestic production and falling refinery utilisation.”
But the refinery maintenance there has reduced throughput by its plants from 17 million bpd to 15.5 million bpd, and once that is reversed there should be a sharp reduction in stocks, which preliminary data this week from the US Energy Information Agency supports.
amcauley@thenational.ae
Follow The National's Business section on Twitter