IEA Report and U.S. Crude Draw Suggests the Recent Bearish Sentiment on Oil is Likely to Reverse....

The International Energy Agency (IEA) today reiterated its belief that OPEC cuts should create a global crude deficit in the first half of 2017. The IEA noted that global inventories rose in January for the first time in six months despite OPEC output cuts (in part because OPEC members pumped heavily before the cuts were implemented and U.S. shale producers have raised output), but said if it stuck to its production curbs the market should see a deficit of 500,000 bbl/d in H1/17. Accordingly, the market has been intently watching the weekly U.S. Energy Information Administration (EIA) figures to see if it confirms a fall in U.S. inventories. After nine consecutive weeks of inventory builds in the U.S., this week surprised the market with a crude draw of 237,000 barrels compared with analysts' expectations for an increase of 3.7 million barrels. Further, gasoline stocks fell by 3.1 million barrels, compared with analysts' expectations for a 2 million-barrel drop. Distillate stockpiles, which include diesel and heating oil, were down 4.2 million barrels, versus expectations for a 1.7 million-barrel drop. 

Overall, the message from the IEA (supported by this weeks draw in crude) is that the market needs to have patience as it takes time for production restraints to filter through in the form of inventory reductions. So, as long as OPEC stays on track and non-OPEC delivers on their agreed cuts, the market will continue to balance. The question for market watchers is while such patience (suggested by the IEA) will likely benefit longer-term investors it may not be much help for money managers facing year-to-date losses on long positions (suggesting further oil price volatility in the near term is likely in the cards).