Rebound in oil prices built on flimsy foundations: IEA
A recent rebound in oil prices is built on flimsy foundations, the International Energy Agency warned Friday, with few signs yet that cheap fuel is helping boost the global economy.
Oil prices plummeted by 60 percent between June and January, but have since come off six-year lows and stabilised somewhat, with London's benchmark Brent trading around $60 per barrel and the WTI contract in the United States fluctuating around $50 per barrel.
"Behind the facade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly," said the Paris-based IEA, which advises energy consuming nations.
It noted that a key driver in the recovery in oil prices, with Brent being up by 30 percent from the lows it touched in January, has been drops in the number of rigs drilling for shale oil in the United States.
"Yet US supply so far shows precious little sign of slowing down. Quite to the contrary, it continues to defy expectations," said the IEA in its monthly Oil Market Report, which sharply revised up its output estimates for the end of last year and forecasts for the beginning of 2015.
With US crude stocks striking an all-time record of 468 million barrels, it said storage capacity limits may soon be tested.
While this would encourage the supply cuts that have so far remained elusive, the IEA warned the fall in supply "...might also prove more abrupt."
The IEA also warned "supply disruption risks are on the rise", which could serve to push prices up sharply.
It pointed to possible disruptions in social stability as countries dependent on high oil prices to fund social welfare programmes are forced to cut back, as well as unrest in Iraq and Libya provoking disruptions.
Oil companies with huge amounts of dollar-denominated debt are facing a double-whammy of low crude prices and a strong dollar.
The IEA said global supply rose by an estimated 180,000 barrels per day in February to 94 million barrels per day (mbd) due to expanding production in countries outside the OPEC oil cartel.
Non-OPEC supply is still expected to grow this year, by 750,000 bd, but this is much lower than the 2.1 mbd gain in 2014.
Meanwhile, oil demand has also been picking up. The IEA raised its demand forecasts for every quarter this year, with the annual 2015 figure bumped up by 100,000 bd to 93.5 mbd.
The increase is somewhat deceptive, the IEA noted, as it rests partially on one-off factors as cold weather and a low point of comparison the previous year.
The IEA said "there are still few firm signs at this stage that lower prices are giving the economy a real boost. China, for one, remains in cooling mode."
Last week China lowered its 2015 growth target to around seven percent, after posting in 2014 its slowest expansion in nearly a quarter century of 7.4 percent.
It said China's "relative macroeconomic weakness dampens demand despite numerous recent government price cuts."
The IEA said the forecast of the International Monetary Fund for a moderate uptick in growth from 3.5 percent in 2014 to 3.7 percent this year underpinned its forecast for increased demand this year.
Global growth has underperformed forecasts in recent years.
Production in OPEC nations edged down by 90,000 bd to 30.22 mbd in February due to violence-related drops in Libya and Iraq offsetting gains in Saudi Arabia.
OPEC members refusing to agree on production cut at the end of last year accelerated the plunge in oil prices.
The IEA said that the higher global demand forecast included an increase in the forecast demand for OPEC supplies by 100,000 bd to 29.5 mbd in 2015.
World oil prices sank Friday after the IEA released its report.
In midday London deals, European benchmark Brent North Sea crude for April delivery fell 57 cents to $56.51 a barrel.
US benchmark West Texas Intermediate (WTI) for April shed 72 cents to $46.33 a barrel.