Oil prices may have passed their lowest point as shrinking supplies outside OPEC and disruptions inside the group erode the global surplus, the International Energy Agency says.
As Bloomberg News reports, production outside the Organization of Petroleum Exporting Countries will decline by 750,000 barrels a day this year, or 150,000 barrels a day more than estimated last month, the agency says. Markets are also being supported by output losses in Iraq and Nigeria, and as Iran restores production more slowly than planned following the end of international sanctions.
“There are signs that prices might have bottomed out,” the Paris-based adviser to 29 countries says in its monthly market report today. “For prices there may be light at the end of what has been a long, dark tunnel” as market forces are “working their magic and higher-cost producers are cutting output.”
Oil prices have recovered 50% from the 12-year lows reached in January as U.S. shale production retreats and as some OPEC members led by Saudi Arabia reached a tentative accord with Russia to maintain output at current levels, according to Bloomberg. This “freeze” deal, while currently supporting prices, is unlikely to have a substantial impact on markets in the first half of the year, the IEA says.
The agency’s view on prices is a shift from last month’s report, in which it said that crude could sink further as the market remained “awash in oil.” Brent futures traded at about $40 a barrel in London today.
The outlook for the balance of supply against demand in the first half is “essentially unchanged” from last month, the IEA says. World oil consumption will increase by 1.2 million barrels a day, helping to reduce the global surplus from 1.7 million barrels a day in the first half to 200,000 a day in the last six months of the year. Last month it projected the second-half surplus would be 300,000 a day. The agency repeated that it could lower the demand estimate as the price recovery curbs U.S. appetite for gasoline.
