IEA ups non-Opec forecast despite US slowdown

OREANDA-NEWS. The IEA has raised its projection for non-Opec supply growth this year, despite signs that lower oil prices and capital expenditures are starting to take a toll on US production.

Non-Opec output is forecast to rise by 830,000 b/d from 2014 to 57.8mn b/d this year, according to the IEA's latest Oil Market Report (OMR). Growth was pegged at 630,00 b/d in the previous OMR.

The revision follows recent strong production in a number of countries, including Russia, Brazil, China, Malaysia and Vietnam.

"While the price responsiveness of (US) light tight oil was widely anticipated, the strong performance of some other sources of non-OPEC supply defied expectations," the IEA said today. "The rest of the oil patch is not standing still. As the market continues to rebalance, pockets of supply growth are emerging from unsuspected corners."

A decline in drilling activity has led to a slowdown in tight oil output in the US, with overall US liquids production falling to 12.6mn b/d in April from 12.62mn b/d in March.

"Light tight oil production growth buckled last month, sending US crude output growth into reverse and bringing a multi-year winning streak to an apparent close," the IEA said.

Even so, the IEA has not revised its outlook for full-year US production significantly. Overall US liquids output is projected to rise by 680,000 b/d this year. The previous OMR forecast growth of 710,000 b/d.

The IEA expects growth in deepwater US Gulf of Mexico output to continue, underpinned by several recent start-ups. And the recent rebound in oil prices is giving tight oil producers "a new lease of life", with several "boasting of achieving large reductions in production costs in recent weeks", it said.

"It would thus be premature to suggest that OPEC has won the battle for market share."

The upwards revision to the non-Opec supply growth projection has led the IEA to cut its forecast for call on Opec crude to 29.2mn b/d this year — compared with 29.5mn b/d in last month's OMR.

The forecast for global oil demand growth this year has been raised by around 30,000 b/d from last month's OMR to 1.1mn b/d. This compares with estimated growth of 660,000 b/d in 2014.

The main factor driving the acceleration in growth this year is "the reversal in OECD momentum", the IEA said.

OECD demand has swung from an estimated decline of 460,000 b/d last year to a forecast gain of 175,000 b/d in 2015, driven by an improvement in the OECD economic outlook and colder winter weather conditions in Europe.