No not the trade war, but we could be seeing progress on that, and not the attack on Syria, that has not happened, yet. No, we are talking about the global oil market rebalancing. The International Energy Agency that previously warned of lower for longer oil prices and warned last year that the oil price recovery was threatened by the possibility of weak demand now has changed its tune and is now saying that it is ‘mission accomplished’ for OPEC as oil stocks shrink at a record pace. The IEA reports that the commercial stocks, in industrialized nations, fell to just over 2.8bn barrels by the end of February. This is only 30 million barrels above the five-year average. If the trend continues we could fall below average in global oil supply next month at a time when global demand is well above average.
And now instead of talking oil glut, the IEA is now warning that while it is not for them to declare victory for the cartel, if OPEC keeps doing what they are doing, oil supply will become too tight and lead to a price spike.
Of course, the energy report has been warning of that and to be honest it may be too late to change that outlook. OPEC production is on the downslide and it is unclear that they have the ability or the inclination to raise production as supply tightens. On top of that, the world is counting on the U.S. shale patches to account for most of the NON-OPEC supply growth. So instead of spending money on expanding oil exploration, production, and infrastructure, it appears that we will be left on the short end of the oil stick.
The IEA popped oil overnight on the IEA “mission accomplished” report but it pulled back on reports that Russia is now looking to retaliate on U.S. sanctions by banning many goods and services from the U.S. This news offset good news about the ratcheted down of trade tensions with China and the possibility the U.S. could be re-entering the Trans-Atlantic Partnership. MarketWatch reports that “One year after withdrawing, the U.S. from the Trans-Pacific Partnership, President Donald Trump has asked his top economic advisers to study the possibility of re-entering the trade pact negotiations. Trump has deputized Robert Lighthizer, the U.S. trade representative, and Larry Kudlow, the director of the National Economic Council, to study the possibility of re-entering the TPP if the terms were favorable”, the president told a group of lawmakers on Thursday. If the deal gets done, that should further improve oil demand prospects, yet threats by Russia could slow that down.