IEA sees oil markets moving 'close to balance' in second half 2016

* Limited impact from Qatar meeting
* Saudi demand slows, boosting exports

Global oil markets will move "close to balance" in the second half of this year as the fall in US tight oil production gathers pace and India helps drive global demand, the International Energy Agency said Thursday.

The agency's latest monthly oil market report estimated that global oil supply had dropped by 300,000 b/d month-on-month in March, two thirds of the drop being outside OPEC, but also noted several bearish factors for prices.

These included global demand growth slowing to 1.2 million b/d in the first quarter of this year, led by Europe and North America.

Commercial oil stocks in the OECD countries appear to have continued their "relentless rise" in February and March, rising by a counter-seasonal 7.3 million barrels in February to create an overhang 387 million barrels above the average at the end of the month, the IEA said.

Refined product stocks had fallen by just 11.5 million barrels in February, barely a third of the five-year average for the month, due to mild weather.

The IEA also foresees little impact for the time being from a meeting of oil producing countries this Sunday, called to discuss a possible freeze in production levels.

It noted that Iranian oil production had risen by nearly 400,000 b/d since the start of the year. In Iraq, surging production in the south is helping compensate for disruption in the north of the country, although a political crisis and shortfalls in payments to companies operating in the south could bode ill for production next year, the IEA said.

Regarding Sunday's meeting in Qatar: "If there is to be a production freeze, rather than a cut, the impact on physical oil supplies will be limited," the report said.

"With Saudi Arabia and Russia already producing at or near record rates and very little upside seen apart from Iran -- which has vowed to ramp up production to a pre-sanctions level of 4 million b/d -- any deal struck will not materially impact the global supply-demand balance" in the first half of this year, the report added.

But for the second half of the year the IEA confirmed it expects global oil supply to exceed demand by just 200,000 b/d in both the third and fourth quarters, based on a conservative estimate of OPEC crude output of 32.8 million b/d in the second quarter and 33 million b/d in the third and fourth quarters.

The report cited preliminary estimates that US tight oil production fell by as much as 450,000 b/d year-on-year in March, as low oil prices took their toll. It noted that the count of US onshore rigs had fallen by 80% since October 2014.

DEMAND ENGINES

On the demand side, the report said global gasoil demand had been slowing sharply, falling in China, Japan and the US in the fourth quarter and probably shrinking globally in the first quarter this year, but added a modest recovery was likely toward the end of this year, led by industrial demand.

India is turning into a driver of global oil demand growth, while demand in both China and Russia has shown "surprising resilience," the report said.

"India could be replacing China as the main engine of global demand growth. Revised data for late 2015 and early data for 2016 shows year-on-year growth of approximately 8%. For 2016 as a whole, India will see growth of around 300,000 b/d -- the strongest ever volume increase," the report said.

"Reforms to the rules allowing refiners to directly import crude oil are all part of a general trend towards liberalization that should underpin India's growth momentum."

Chinese demand rose by 2.9% in the January-February period compared with a year earlier, and Russian demand by 205,000 b/d in the first quarter compared with a year earlier, driven by manufacturing, the IEA said.

The report also forecast that demand growth in Saudi Arabia was likely to vanish this year due to reduced requirements for oil in power production in the summer as the country installs more gas infrastructure, combined with a weakening economic outlook.

In January, Saudi crude exports to world markets at 7.84 million b/d were at their highest since March 2015 as exports of refined products dipped, the report noted.

--Nick Coleman, nick.coleman@platts.com
--Edited by Jeremy Lovell, jeremy.lovell@platts.com

http://www.platts.com/latest-news/oil/london/iea-sees-oil-markets-moving-close-to-balance-26418640