IEA bumps up 2018 oil demand forecast

WTI Crude Oil

Daily May West Texas Intermediate Crude Oil

The Elevation Resources drilling rig is shown at the Permian Basin drilling site in Andrews County, Texas May 16, 2016. If OPEC were to declare victory and return to full production, oil prices would likely fall sharply.

US crude inventories rose by 1.2 million barrels in the week to March 9, to 428 million barrels, the American Petroleum Institute said on Tuesday. Brent crude is now above $64.60.

That "caught the market by surprise", said Phil Flynn, senior market analyst at Price Futures Group.

Prices were receiving support from healthy demand. Crude futures have moved in sync with equities uninterruptedly for the past 99 trading days, the longest such stretch in two years. Today's announcement marks the fourth consecutive month that OPEC has had to raise its expectations for supply growth from the US and other producers. A broader market slump initially drove prices lower, while surging American production and increasing inventories remain a challenge. Inventories plunged toward the end of past year, tightening the market and forcing up oil prices.

All this points to American crude output exceeding expectations in output terms; within OPEC, Iran is lobbying to keep oil prices at US$60, fearing that a US$70/b target will only encourage additional United States shale output.

WTI for April delivery traded at $61.25 a barrel on the New York Mercantile Exchange, up 29 cents at 9:39 a.m. local time, after rising 25 cents on Wednesday. The spread between the first two contracts settled at minus 4 cents, the first time it closed at a discount since January 22. The global benchmark widened to a US$3.89 premium to May WTI.

The oil price is still showing a 1% loss so far this week as concern grows about the ability of Opec and its partners to counter rapid growth in United States crude production, which is tipped to hit a record 11 million bpd before the end of the year. The Permian Basin is seen leading the way with an 80,000-barrel increase.

Kazakhstan looks set to continue ignoring its output restraint commitment as part of the non-Opec cohort in the Saudi Arabia/Russia-led Group of 24 producers supposedly restraining oil output. Non-OPEC supply is expected to grow by 1.8 mb/d.

Venezuela lost another 60,000 barrels per day (bpd) in February, according to the Paris-based energy agency, and continues to present the largest supply risk to the global oil market.

On supply, new and revised data shows very little change in the outlook versus last month.

In the meantime, market re-balancing is clearly moving ahead with key indicators - supply and demand becoming more closely aligned, OECD stocks falling close to average levels, the forward price curve in backwardation at prices that increasingly appear to be sustainable - pointing in that direction.

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