The oil markets are jittery. In the last week the price of oil increased to $US 53/B when President Trump officially put Iran “on notice,” and then sunk down to almost $US 52/B on news of a large gain in US crude oil stockpiles. Although US oil storage typically builds this time of year, the fill rate is exceeding last year.
Despite the nervous sentiment, the fundamentals are still looking on-track. Oil demand grew by 1.5 MMB/d last year, and the International Energy Agency projects 1.3 MMB/d more in 2017. Actual demand growth will likely exceed this outlook.
And assuming that OPEC and non-OPEC producers follow through on commitments, a supply deficit in the range of 1 MMB/d should emerge during 2017. Watch for positive news on OPEC cuts next week, when OPEC officially reports their production levels.
Returning to the topic of oil storage; with both American and Canadian production expected to grow this year, higher year-on-year storage levels in North America are to be expected.
The real flip from market surplus to deficit will occur outside of North America, and as a result the international storage tanks (that hold almost 60% of the barrels, see Figure 1) are the ones that will be drawn down first. With international oil storage data delayed three months, it will be April or May before the market will see concrete data on progress in clearing the glut.
To help stay calm, keep an eye on the fundamentals.