Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
The International Energy Agency(IEA) thwarted an overnight American Petroleum Institute (API) report rally with a bunch of blarney and malarkey about oil demand. The IEA has declared that a “super cycle” in oil demand is unlikely while admitting that the agency underestimated demand in their last report. In fact the IEA has had a long track record of underestimating demand. They also say that oil demand may not return to pre-covid levels for 2 years and warned that some of the covid oil demand destruction may be permanent.
Yet on the more bullish side of the IEA mouth, they did report that global oil supplies fell by 2 million barrels a day as Saudi production cuts and the cold snap in Texas reduced supply. They acknowledged that global oil stocks fell by 14.2 million barrels to 3.023 million barrels putting the global supply just 63 million barrels above the five year average and that may be the best we see for a while as that deficit will melt away just like your heart when Irish eyes are happy!
The IEA agrees with what we have been saying for months that improving demand and OPEC cuts will lead to huge oil stock drawdowns in the coming months especially in the second half of the year. The IEA is now on board with what we have been predicting for months. Yet they have a problem with what we and many are saying that we are in a new “super-cycle” for oil but also raises doubt about “peak” oil demand anytime in the near future.
The IEA said, “Oil’s sharp rally to near $70 a barrel has spurred talk of a new supe-cycle and a looming supply shortfall. Our data and analysis suggest otherwise,” the IEA said in its monthly report. “For a start, oil inventories still look ample compared with historical levels despite a steady decline … On top of the stock cushion, a hefty amount of spare production capacity has built up as a result of OPEC+ supply curbs,” it said. Of course remember the IEA totally missed the last super-cycle in oil back in the early 2000’s making basically the same arguments.
They also admit that upstream investment dropped by 30 percent last year compared with 2019. This year, the IEA expects it to increase “only marginally”. Argus reports that the report sees the world’s production capacity increasing by 5mn b/d by 2026, compared with 2020. But “the historic collapse in demand has resulted in a spare production capacity cushion of a record 9mn b/d that could keep global markets comfortable in the near term”. Wishful thinking. The IEA said that, “To meet the growth in oil demand to 2026 in the IEA report’s base case, supply needs to rise by 10mn b/d by 2026,” the IEA said. “The Middle East, led by Saudi Arabia, is expected to provide half that increase, largely from existing shut-in capacity.”
Oil prices are also getting some resistance from more reports of Iran and China thumbing their nose at the Biden administration openly ignoring sanctions on oil. There is some talk about that creating an issue for OPEC. Yet today it’s really about Energy Information Administration data and the Fed. If the Fed gives us what we expect will be a dovish outlook, oil will bounce. The IEA sell off should be short lived because usually the IEA turns out to be wrong on their big picture calls. Yet they still move the market for hours or days sometimes.
The Energy Information Administration will move on refinery runs and gas demand! We know that prices at the pump have been rising but may ease off before they rise again for summer.
So may the road rise up to meet you. May the wind be always at your back. May the sunshine warm upon your face. The rains fall soft upon your fields, And, until we meet again, May God hold you in the palm of His hand. Happy Saint Patrick Day!
Invest in yourself so you’ll be wearin’ the green! Tune to the Fox Business Network! They are invested in you!
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