London, UK | – Global oil inventories probably increased in the first quarter despite OPEC’s near-perfect implementation of production cuts aimed at clearing the surplus, the International Energy Agency said.
While cutbacks by OPEC and Russia since January have brought world markets “very close to balance” and should deplete stockpiles in the second quarter, inventories nonetheless expanded “marginally” because of production increases just before the deal took effect, the IEA said in its monthly report on Thursday. The agency lowered estimates for global demand growth because of weaker-than-expected economic activity in India and Russia.
Crude prices rallied last year as OPEC and Russia announced their joint effort to end a three-year oil glut, yet gains have stalled on signs the cuts aren’t working quickly enough and are encouraging rival U.S. shale drillers to fill any shortfall.
“Global stocks might have marginally increased in the first quarter,” said the Paris-based agency, which advises most of the world’s major economies on energy policy. While “this might be surprising as it comes after the implementation of OPEC output cuts,” it reflects the group’s export surge late last year. U.S. crude futures traded $0.07 higher at $53.18/bbl on the NYME.
Oil inventories in the 34-nation Organization for Economic Cooperation and Development increased by 38.5MMbbl in the first quarter to about 3 billion barrels, offsetting the decline in emerging economies.
“Inventories are the barometer of global oil market re-balancing,” said Neil Beveridge, an analyst at Sanford C. Bernstein & Co. “Despite OPEC cuts, global inventories showed a bigger-than-expected build in the first quarter. Recent data however points to sharp inventory declines in the second quarter as the delayed impact of OPEC cuts finally starts to filter through.”
Stockpiles will decline by about 1.2MMbpd in the second quarter if the group maintains current output levels, and by 1.6MMbpd if it extends the curbs into the second half, the IEA’s data indicates.
The IEA trimmed forecasts for global oil demand growth this year by about 100,000 bpd to 1.3MMbpd, or 1.4%, as a result of weaker OECD consumption and economic activity in India and Russia “slowing abruptly.”
OPEC achieved 99%of its promised supply reduction through March as Saudi Arabia, along with Kuwait, Qatar and Angola, cut more than required, making up for lagging compliance in Iraq and the United Arab Emirates. The group’s output dropped by 365,000 bpd to 31.68MMbpd, the IEA said. OPEC’s 11 partners in the accord delivered 64% of their pledged cuts, their strongest adherence since the deal began.
Saudi Arabia, OPEC’s biggest producer, is said to favor extending the supply curbs when the group meets next month, in line with the views of fellow members such as Kuwait and Venezuela. While such a decision would reduce oil inventories and support prices, it would “offer further encouragement to the U.S. shale sector and other producers,” the IEA said.
The agency boosted estimates for growth in non-OPEC supplies this year by 90,000 bpd to 485,000 a day amid “robust activity in the U.S.” Drilling has more than doubled since May as the price recovery draws investment back to the nation’s shale-oil industry, data from Baker Hughes shows.