IEA: Market Shows Waning Confidence In Oil Rebalancing

Energy Snapshot What Happened on July 3–7 2017

USA oil production has been strong relatively speaking, though lower oil prices in June led to brief declines in output, as well as exploration and production activity. The oil price has declined more than 15 percent since the May agreement. Any warm up in temperatures at this point will heat up natural gas prices that may see storage come in at the end of the season at the lowest level in five years. In fact, a major role in this story has been played by the United States, where improved techniques of hydraulic fracturing, or fracking, enabled oil companies to gain access to the biggest oil reserves in the world, according to George Friedman, a political geographer.

The group's output climbed last month to the highest level this year as members exempt from the agreement to cut - Nigeria and Libya - pumped more and others slipped in delivering their promised cutbacks. "Non-OPEC production is expected to expand by 0.7 mb/d in 2017 and 1.4 mb/d in 2018".

In its closely watched monthly oil market report, the IEA said it now expects global demand to rise by 1.5% this year to 98 million barrels a day, driven in part by rising consumption in Germany and the USA during the second quarter.

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While U.S. oil inventories logged their 11th decline in 13 weeks and the largest since September amid lower imports from Saudi Arabia and strong exports, daily average output was 9.4 million barrels, the highest figure for a week in two years. Demand next year is expected to rise 1.4 million bpd to 99.4 million bpd.

By the IEA's estimate, it's not just three members undermining OPEC's efforts.

Even as the Energy Information Administration (EIA) reported that USA oil production had risen, most of that gain was from Alaska and the Gulf of Mexico.

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The research house noted OPEC produces a heavier and sourer form of oil, while US, Nigeria and Libya's are light and sweet. US shale production continues to rise; inventories remain elevated; and the markets are concerned that the OPEC cuts are not doing enough to drain the surplus.

A coalition of 24 OPEC and non-OPEC countries including Russian Federation have been throttling their output since January to prop up prices.

US producers need oil at $55 a barrel to keep growing production and stay profitable, but would need to improve their efficiency to do it at $45, analysts at Goldman Sachs Group Inc. said Thursday. However, recently both countries have ramped up production, feared to offset the cuts implemented by the rest of the group. Total compliance in the deal is at about 78 percent, down from the 95 percent reported in May.

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