Doubts Around Major WTI Price Drivers Highlighted in Recent IEA Oil Market Report

Given that there is very little optimism that WTI prices will drastically improve in H1/16, its worth looking at the price drivers highlighted in the recent IEA Oil Market Report that may or may not make a difference in H2/16. First, it would appear that the persistent speculation about a deal between OPEC and leading non-OPEC producers to cut output appears to be just that: speculation. Based on recent comments by Saudi's Oil Minister Ali Ibrahim Al-Naimi at a conference in Houston, it appears the Saudi's have no intentions of cutting production anytime soon. Secondly, many industry watchers believe that OPEC production, aside from Iran, will not grow significantly in 2016. However, Iraqi output in January reached a new record and it is possible that more increases could follow. Another driver of bullishness for many industry watchers is that oil demand growth will receive a boost from the collapse in oil prices to below $30/bbl. Even with the recent price collapse in oil, the IEA is still forecasting that global oil demand growth will ease back considerably in 2016 to 1.2 mb/d (on slowing China growth, etc.). Finally, the expected fall in non-OPEC output is another driver of possibly higher prices in H2/16. The IEA has forecaster that total non-OPEC output will fall by a net 600 kb/d in 2016 (this reduction will help shore up the global supply/demand imbalance, but is not enough to completely balance the market). Accordingly, the IEA notes that supply and demand data for the second half of the year suggests more stock building, this time by 0.3 mb/d. So, with the market already awash in oil, it would seem based on the IEA's forecasts, it is unlikely that oil prices can rise significantly in the short term.