Both the IEA Oil Market Report and the EIA Short Term Energy Outlook(STEO) were released today and neither report had much succor for any near term bulls. The IEA pulled no punches really in their summary:
“With major doubts around these five drivers of recent relative price strength we are left with our revised supply/demand balance. In this report we suggest that the surplus of supply over demand in the early part of 2016 is even greater than we said in last month’s OMR. On the assumption – perhaps optimistic – that OPEC crude production is flat at 32.7 mb/d in Q116 there is an implied stock build of 2 mb/d followed by a 1.5 mb/d build in Q216. Supply and demand data for the second half of the year suggests more stock building, this time by 0.3 mb/d. If these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term. In these conditions the short term risk to the downside has increased.”
Thats a fairly brutal assessment. The STEO http://www.eia.gov/forecasts/steo/ while not providing as bearish spin in their summary as the IEA, still reported projections that were far from encouraging,particularly on the inventory front. In the US, total inventories excluding the SPR are at 1.338 billion barrels or 231 million barrels over the four year average. Essentially throughout 2016 total stocks never really approach anything near average levels. However the EIA does show that total stocks will draw in the fourth quarter and by end December will be 1.274 billion barrels or “only” 108 million barrels over the four year average. While the market may take this port in the storm as constructive, domestic stocks will remain in a significant surplus. The STEO shows total inventories for 2017 as generally below 2016’s level on a monthly year on year basis. While they will still remain in surplus-the surpluses will also be narrowed to normal levels. This is fairly in line with market expectations that late 2016 will see improvement and 2017 the market will be moving more into balance. But even then-the market will not be IN balance.
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