OPEC oil production cuts set to drive up Brent crude price over $70-barrel this year, says IEA

OPEC and its allies appear to have accomplished their mission of bringing global oil stocks to desired levels, the International Energy Agency has reported, signalling that the price of benchmark Brent crude might rise in Autumn 2018 if supply remains restrained.

The IEA, which coordinates the energy policies of industrialised nations, said global stocks in developed countries could fall to their five-year average – a metric used by OPEC to measure the success of output cuts – as early as May this year.

“It is not for us to declare on behalf of the Vienna-agreement countries that it is ‘mission accomplished’, but if our outlook is accurate, it certainly looks very much like it,” the IEA said in its monthly report.

Vienna-based OPEC has reduced production in tandem with Russia and other allies since January 2017 to prop up global oil prices, which soared above $70-barrel this month, giving a new boost to booming US shale oil output.

But as oil production from OPEC-member Venezuela has collapsed – and still faces hiccups in countries such as Libya and Angola – the Saudi-dominated oil exporter group is producing below its targets, meaning the world needs to use stocks to meet rising demand.

Last week, the Organisation of the Petroleum Exporting Countries said in its monthly report that oil stocks in the developed world were only 43 million barrels above the latest five-year average. The Paris-based IEA put the figure at just 30 million barrels as of the end of February.

The IEA said that even though non-OPEC output is set to soar by 1.8 million barrels per day this year –  mostly on higher US production – it is not enough to meet global demand, expected to rise by 1.5 million bpd or around 1.5 percent.

Conventional economic law of demand and supply says that if demand exceeds supply, prices will  rise.

An IEA spokesman said: “Our balances show that if OPEC production were constant this year, and if our outlooks for non-OPEC production and oil demand remain unchanged, in 2Q18-4Q18 global stocks could draw by about 0.6 million bpd.

The figure would represent 0.6 percent of global supply – or around half of OPEC’s current production cuts of nearly 1.2 million bpd.

The OPEC output-limiting pact runs until the end of the year and the cartel meets in June to decide its next course of action.

OPEC Secretary-General Mohammad Barkindo also told Reuters that OPEC and its allies are poised to extend the pact into 2019 even as a global glut of crude looks set to evaporate by Autumn 2018.

17 Apr 2018

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