IEA: Oil war 'just starting'

In its latest monthly report released Wednesday, the International Energy Agency (IEA) said that global oil supply in the first quarter of the year remained stable at 95.7 million barrels per day (bpd), which, however, was exceeding global demand by about 2 million bpd.

The energy watchdog for industrial nations also said that a recent slowing in US shale oil output was being offset by higher output from countries in the OPEC oil cartel as well as by non-OPEC oil nations.

"In the supposed standoff between OPEC and US light tight oil (LTO), LTO appears to have blinked. Following months of cost-cutting and a 60-percent plunge in the US rig count, the relentless rise in US supply seems to be finally abating," the IEA said.

However, IEA said pockets of supply growth were emerging from "unsuspected corners," such as Vietnam, Malaysia and China. Also Russia and Brazil were coping "unexpectedly well" with the drop in oil prices since summer 2014.

New lease of life for US producers

Oil prices plummeted by more than 60 percent from peaks of over $100 (88 euros) per barrel last year to under $50 at the beginning of 2015. Spectacular growth in US shale oil production and an OPEC decision not to curtail output have led to the price slump.

But IEA noted that a recent oil price rebound to around $65 per barrel was giving US oil producers a new lease of life.

"Several large LTO producers have been boasting of achieving large reductions in production costs in recent weeks. At the same time, producer hedging has reportedly gone steeply up, as companies took advantage of the rally to lock in profits," the IEA report said.

As a result, IEA concluded that It would be premature to suggest that OPEC had won the battle for market share, adding: "The battle, rather, has just started."

Glut shifting

The energy watchdog now sees signs emerging that the crude oil glut is moving into the markets of refined oil products, which was likely to make the recent oil price rally "unsustainable."

US product stocks, it said, were building "counter-seasonally in March, and China posted record-high distillate builds."

"Preliminary data show OECD-wide product stocks stopped drawing and swung to growth in April. More such builds may follow as global demand goes through a seasonal soft patch and refining activity increases worldwide," IEA's report added.

According to IEA, there is little sign of OPEC curtailing its output in the next month because "early soundings" suggest the cartel will sustain rates at around 31 million bpd during May.

Kuwait, Saudi Arabia and the United Arab Emirates (UAE) were all boosting their rig count, it found, while Iraq and Libya continued to increase production "against all odds." Iranian output, meanwhile, has hit a record high since July 2012.

uhe/ng (AFP,dpa, Reuters)