Reasons to be cheerful?

The highly influential Ibrahim al-Muhanna, adviser to Saudi oil minister Ali Naimi, points to the recent stabilisation of the price of Brent crude around $60/bl and says: “I have reasons to be optimistic. It is my view that optimistic and positive people are more right than wrong. I am confident that demand is, and will be, stronger. I am also confident that supplies will be just sufficient to meet demand and that prices will firm up.”

His confidence may prove well founded but it is not yet widely shared and he himself argued in the same speech in Doha that “the recent price fall was due largely to expectation and perception about future supply and demand”.

As if on cue, Barclays today opined: “The perception that sanctions relief [for Iran] will lead to more oil on the market could pave the way for the next move down in oil prices.” In fact, Barclays does not envisage sanctions going in one fell swoop, if they are indeed lifted.

A day after al-Muhanna spoke, today’s Opec Monthly Oil Market Report was less sanguine about the prospects for recovery, leaving 2015 demand growth, non-Opec supply growth and the call on Opec crude unchanged from the previous report. Ironically, the only significant fall in production reported by Opec was from the organisation’s members themselves. On their own data, they were producing 800,000 b/d less in February than in December, albeit largely because of foul weather in Iraq.

And the Opec secretariat’s assessment of prospects for the global economy — key to demand growth (outside of Europe at any rate) — is less than comforting for producers. It refers to “a global growth level that still remains below its potential”, “weaker than expected indicators in the US”, a Japanese economy that “remains challenging”, and a eurozone with “issues”. Worse, given the reliance of oil demand growth on major developing economies, Chinese lead indicators point to slower growth, Indian growth is seen strong but downwardly revised, Brazil is stagnant and the Russian economy is a mess.

Although it modestly lifted its 2015 call on Opec crude and global demand growth numbers, the IEA monthly report at the end of last week was scarcely more comforting, saying that prices look rangebound. “On the face of it, the oil price appears to be stabilising. What a precarious balance it is, however.” Rebalancing has yet to run its course and there is precious little evidence of US supply growth slowing, the OECD watchdog says. At the same time, US stocks are building and may test capacity limits in the second quarter.

French bank Societe Generale today also pointed to the stockbuild issue, this time on a global basis, saying: “The arithmetic works out to a combined build in crude and refined products of approximately 200mn bl in March-June. Any way you slice it, this is bearish for prices.”

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