IEA makes cuts in US production forecasts

On February 10, the International Energy Agency (IEA) cut its forecast for non-OPEC supply growth in 2015, taking account of companies slashing spending in reaction to the much lower oil price, and revised down its expectations for US production this year.

It said reductions in capital expenditures had cut projected 2015 non-OPEC supply growth to 800,000 b/d for 2015 compared with a forecast of 950,000 b/d in the previous month’s report.

The IEA had already reduced its forecast for non-OPEC supply growth this year by 350,000 b/d in its January report.

It is in the US in particular where the IEA sees lower production because of the spending cuts; it now sees total US output in 2015 at 12.4 million b/d, a reduction of 200,000 b/d on its previous estimate.

Most of the cuts are expected in the second half of the year, it said.

The IEA raised its demand forecast for OPEC crude in the second half of 2015 by 400,000 b/d to 30.2 million b/d, back above the group’s production ceiling of 30 million b/d.

“Non-OPEC supply has become on average more price responsive than during previous price plunges,” the IEA said.

It said the swiftness of light tight oil supply cuts will help put a floor under prices, just as their reversal when prices rebound in earnest might put a ceiling over them.

But, it said, supply expectations for the first half of 2015 have yet to be significantly reduced and the latest data for December 2014 show no further reduction in the estimate of supply in the final quarter of last year.

The IEA also said the recent spending cuts by oil companies would take time to translate into any meaningful reduction in supply.

Industry oil stocks inched down by just a tiny fraction of their usual draw in December, sending the surplus versus average levels to 65 million barrels, the widest since October 2010, from 16 million barrels a month earlier.

So while the price has rebounded somewhat, and the IEA seeing less US production later in the year, there is still plenty of oil around, including OPEC’s.