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The "journey to a balanced market will take time and will more likely be a marathon than a sprint".
The International Energy Agency (IEA) said the OPEC + cuts that began this month were likely to drive down the price of oil, but it would take some time before that these reductions can not balance the oil market.
Oil prices fell during the month of December, even after the announcement of OPEC + cuts. This reflected the pessimism about the trajectory of the global economy and the fear that the oil market will be on the brink of a further sharp slowdown, comparable to the 2014-2016 recession. These fears were exaggerated, at least with regard to the oil market, but it will be some time before the reduction in production is spreading.
OPEC has released its report on the oil market in recent days, which indicated that the deal had cut production by 750,000 b / d in December – significant cuts that preceded the entry into force. force of the transaction. Saudi Arabia led the way with cuts of 468,000 b / d, but its efforts were facilitated by unintentional losses from Iran (-159,000 bpd), Libya (-172,000) bpj) and Venezuela (-33,000 bpd).
In fact, these three countries have seen a mbadive reduction in their production over the past two months. The OPEC + agreement uses October as a baseline, forecasting reductions of 1.2 million barrels per day (MB / d), and the group is on track due to turmoil in a few countries. In November and December, Iran lost 561,000 bpd, Libya 190,000 bpd, and Venezuela's production fell by 58,000 bpd. Taken together, unintentional breakdowns exceed 800,000 barrels a day.
Related: US oil outlook slammed by lower prices
This greatly facilitates Saudi Arabia's work, and OPEC's de facto leader has committed to reducing his own production by 800,000 b / d compared to the October reference scenario. This means that the OPEC + coalition is on track to balance the oil market.
Nevertheless, Russia's intentions are "less clear," the IEA said in its report. The agency noted that Russia would probably have increased production in December to reach a new record of 11.5 Mb / d, while the January reductions should be gradually implemented. Saudi Oil Minister Khalid al-Falih said in recent days that the cuts are "slower than I would like".
Russian Energy Minister Alexander Novak said on Thursday that his country would try to speed things up. "Of course, we will try to make the cuts faster," Novak told reporters in Belgrade, Serbia. "We have our limits of a technological nature, but we will aim to reach the levels on which we have agreed."
Meanwhile, US shale will continue to grow this year, which will complicate OPEC + efforts. The IEA left its US production growth forecast unchanged at 1.3 Mb / d. Related: It's how much every OPEC + member has to cut
Demand remains one of the key issues for 2019. This is the first IEA report since the severe market turmoil in December and falling prices. The agency has left its forecast growth in demand at 1.3 Mb / d. Although "ambient music in the global economy is not very happy," said the IEA, lower prices and a weaker dollar helped fuel demand somewhat. As a result, low prices somewhat offset the slowdown in the economy.
Finally, this is a great year for the downstream sector. Refiners are preparing for the global Marine Fuels Regulations of the International Maritime Organization (IMO) effective January 1, 2020. The removal of dirty oil from the global shipping fleet will result in an increase of the demand for middle distillates. The margins for diesel are already significantly higher than those for gasoline, and the more the refiners hunt for diesel, the more they flood the gasoline market. At the same time, important additions to the refining fleet are expected this year. "The processing capacity will increase by 2.6 Mb / d, the highest growth of the last four decades," said the IEA. These changes could lead to major disruptions in various fuel markets, with an overabundance of gasoline accompanying a diesel premium.
"From here the end of the year, all players in the industry, upstream and downstream, may have the impression of running a marathon," concluded L & # 39; OUCH.
By Nick Cunningham from Oilprice.com
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