IEA: Oil glut worsens as OPEC market-share battle just beginning

A global oil glut is building as OPEC kingpin Saudi Arabia pumps near record highs in an attempt to win a market-share battle against stubbornly resistant US shale production, the International Energy Agency (IEA) said.

The West’s energy watchdog said in a monthly report that although higher-than-expected oil demand was helping to ease the glut, growth in global oil consumption was far from spectacular.

As a result, signs are emerging that the crude oil glut is shifting into refined products markets, which could make a recent rally in oil prices unsustainable.

“Despite tentatively bullish signals in the United States, and barring any unforeseen disruption elsewhere, the market’s short-term fundamentals still look relatively loose,” said the IEA, which coordinates energy policies of industrial nations.

Global oil production exceeds demand by around 2 million barrels per day, or over 2 percent, following spectacular growth in US shale production and OPEC’s decision last year not to curtail output in a bid to force higher-cost US producers to cut theirs.

As a result, benchmark Brent oil prices more than halved from June 2014 to $46 per barrel in January. They have since rebounded to around $65, however, on fears of a steep slowdown in US production growth.

Despite a certain slowdown in US oil output growth, global crude supply was up by a staggering 3.2 million bpd in April year-on-year, the IEA said.

Beyond high OPEC production, the IEA cited strong performance of non-OPEC countries including Russia, Brazil, China, Vietnam and Malaysia.

The IEA lifted its 2015 forecast for non-OPEC supply growth by 200,000 bpd since last month’s report, saying non-OPEC producers will contribute 830,000 bpd of additional supplies in 2015.

It said an improving economic outlook for Europe was offset by reduced expectations for oil demand growth in the former Soviet Union, the Middle East and Latin America.

“Preliminary data show OECD-wide product stocks stopped drawing and swung into growth in April. More such builds may follow as global demand goes through a seasonal soft patch and refining activity increases worldwide,” it said.

“Bucking the global trend, Kuwait, Saudi Arabia and the UAE are all raising their rig count and expanding their drilling programs. Iraq and Libya, meanwhile, continue to raise production against all odds. And Iranian supplies hit their highest since July 2012,” it said.

April marked the 12th consecutive month in which OPEC production ran above the group’s self-imposed 30 million bpd supply target and was up nearly 1.4 million on the year before as top exporter Saudi Arabia held flows above 10 million.

The IEA said it cut its call on OPEC crude by 0.3 million bpd to 30 million bpd for the second half of 2015 due to upward revisions to non-OPEC supply growth.