‘Every Month It’s Something New’: More Bad News For Oil As IEA Report Flags Supply Woes

Oil probably could have done without any more bearish headlines, but you know what they say about “when it rains”…

On Wednesday, the EIA data confirmed Tuesday afternoon’s bullish API print, but it didn’t matter. There was a pop and then it was promptly faded.

Let’s pull back on that chart a bit for some perspective:

Basically, crude is having a really hard time sustaining a rebound from the bear market into which it plunged late last month and the most unnerving thing about this for the bulls is that oil’s recent trials and tribulations have come amid ostensibly bullish inventory data (albeit with still elevated production) and talk of caps on output from Libya and Nigeria.

Ok, so fast forward to Thursday morning and we got the IEA’s monthly report and although you can parse it for yourself, a determined reader could certainly spin it bearish. Consider these highlights:

• OPEC’s 14 members, including new member Equatorial Guinea, increased crude production by 340k b/d in June to 32.6m b/d, highest level this year, according to IEA’s monthly oil report.
• Saudi Arabia boosted output by 130k b/d, topping 10m b/d for first time in 2017, taking it closer to its OPEC target of no more than 10.06m b/d
• OPEC compliance slumped to 78%, lowest rate this year from 95% in May; non-OPEC compliance improved to 82% in June, overtaking OPEC compliance for first time since agreement took effect in January, vs 74% in May
• Libyan flows reached 1m b/d at end June, a 4-year high; if that higher mark is sustained, Libyan output in July would stand 700k b/d above a year ago
• Nigerian crude production rose by 60k b/d to 1.59m b/d; output may rise to full capacity of ~1.8m b/d in August, according to loading schedules
• “Dramatic improvement” in output from Libya and Nigeria diluted OPEC’s actual supply cut of 920k b/d in June, reducing it to 470k b/d
• Both countries have potential to boost production; “If Libya can sustain current rates of 1m b/d, Nigeria builds slightly on recent gains and the rest of OPEC holds production relatively steady, then July could see OPEC’s cutback eroded to below 300k b/d”
• Angolan output rebounded by 60k b/d; supply from Iraq and Iran also rose
• Iraqi compliance with OPEC/non-OPEC cuts dropped to 29% in June, its lowest rate since the agreement started in January, with output down 60k b/d in June
• Total OPEC production in June was down 180k b/d from a year ago; Saudi Arabia (-460k b/d), Venezuela (-210k b/d) and the U.A.E. (-170k b/d) posted steepest y-o-y declines, while Libya (+500k b/d), Iraq (+210k b/d) and Iran (+170k b/d) showed largest gains

And then all of this:

• Re-balancing of global oil markets has become less certain, with OPEC production rising and little evidence that stockpiles are shrinking as expected, International Energy Agency says in monthly report.
• “The current market balance implies a global stock draw” but “for now, actual stocks numbers do not support this picture”
• Global stockpiles should have declined by 700k b/d in 2Q, but it’s uncertain whether that happened, IEA says

On the bright side, the IEA did raise its estimate for global oil demand this year by ~100k b/d to 1.4m b/d.

But the bottom line is simple. Here’s all you really need to know from the report:

Each month something seems to come along to raise doubts about the pace of the rebalancing process.

Got it.

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