Is OPEC's Mission "Accomplished"?

Global inventories have plunged, with the surplus in the OECD falling to just 30 million barrels above the five-year average. At the same time, refined product stocks are actually below the five-year average. The IEA says that if output remains constant and the demand forecast lives up to expectations, the market could see inventories decline at a 0.6-mb/d pace for the rest of the year.

The data on inventories is not perfect. OECD numbers are published on a two-month lag, providing the market only with a retrospective look at the state of play. Also, the inventory data in the non-OECD -which, at this point accounts for the bulk of demand growth – is notoriously opaque, which makes sweeping conclusions about the oil market tricky.

With those caveats in mind, the IEA said the long-sought market “rebalancing” effort may have arrived. “With markets expected to tighten, it is possible that when we publish OECD stocks data in the next month or two they will have reached or even fallen below the five-year average target.”

Against that backdrop, the reassertion of geopolitical uncertainty is now heavily influential. “As we write, uncertainty about the next steps in Syria and Yemen have helped propel the price of Brent crude oil back above $70/bbl.”

Even as OPEC has apparently achieved its goal of draining surplus stocks, the group seems set on keeping the cuts in place through the rest of this year. That likely means it will formulate new criteria to justify ongoing cuts. “OPEC is within rapid reach of its first announced goals and will have to come up with a new metric for the June meeting if it wants the agreement to last into the second half of the year,” Olivier Jakob of Petromatrix told Reuters.

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