The IEA thumped the market yesterday

As I mentioned on Monday, this week sees the publication of the short term outlook forecasts from all the major agencies. The IEA thumped the market yesterday by pouring cold water on most bullish scenarios such as non-Opec cooperation, a weak dollar and lower than anticipated Iranian production. They suggested that Opec were ‘unlikely’ to cut a deal with other producers and that prices were likely to fall as global supplies increase. In its STEO, the EIA said that demand in 2016 would be trimmed from an increase of 160/- b/d to 110/- b/d thus increasing stocks. The EIA for what it’s worth are forecasting Brent and WTI prices of $38 and $50 in 2016 and 2017 respectively. US production was 9.4m b/d in 2015 and is expected to be 8.7 and 8.5m b/d for 2016 and 2017.

I have in recent months pointed out that the Opec policy of going for market share and driving out high cost production has resulted in an indiscriminate annihilation of some producers, not necessarily outwith Opec itself. Indeed the moves by countries such as Venezuela have rather proved this point. I have also suggested that it hasn’t been US shale that has blinked, rather the cutbacks in capex by the oil majors that has taken the sum of as much as $400m off projects scheduled for the next few years. IP week brings with it a number of opportunities for speakers to make slightly more longer term observations some of which I would certainly concur. On this basis I would point out the comments by Eni who have said that ‘global upstream capex has been reduced to dangerous levels’ and also an interesting suggestion from the IEA. They have said that despite the global slowdown, oil demand grew by 20% in 2015 and forecast a rise of 15% in 2016, indicating that we are storing up a substantial problem for the future as demand will continue to grow and production will fall sharply…