WTI crude prices are up almost 6% this morning with April (the new front-month) trading above $33.50 – testing post-DOE plunge stops. The irony of the ramp is that it comes amid terrible global PMIs (demand), a report from IEA of oil staying in glut for longer than expected (supply), and warnings from Abu Dhabi’s biggest bank that $20 oil is possible. Oh well, we are sure the algos know what they are doing… despite veterans of the 1980s oil glut warning it could take 7 to 10 years to emerge from the current slump.
Overnight saw Japanese PMI tumble, China PMI drop below 50 once again, and Europe worst in a year…so demand is not looking good.
On the supply side, as Bloomberg reports, the global oil glut will persist into 2017, limiting any chance of a price rebound in the short term as the surplus takes even longer to clear than previously estimated, according to the International Energy Agency.
While U.S. shale oil production will retreat this year and next as the price slump hits drilling, its subsequent recovery will ensure America remains the biggest source of new supply to 2021. The Organization of Petroleum Exporting Countries will expand its market share slightly this decade, with Iran, newly released from international sanctions, displacing Iraq as the organization’s biggest contributor to supply growth.
“Only in 2017 will we finally see oil supply and demand aligned but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices,” the Paris-based adviser to 29 countries said in its medium-term report Monday. “It is hard to see oil prices recovering significantly in the short term from the low levels prevailing.”
The IEA’s new outlook is the latest sign that oil forecasters are bracing for a “lower-for-longer” price environment. The agency acknowledged that the industry’s expectations — and its own predictions — that oil markets would recover in 2015 proved “very wide of the mark.” The report also signals that while OPEC will succeed in its policy of defending market share, the group will have to endure an extended period of reduced revenues.
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