The International Energy Agency has injected a solid dose of optimism into oil markets with its latest Oil Market Report. The agency says the market will rebalance itself before the end of the year, thanks to higher demand growth, lower supply surplus and a low probability of producers boosting their output, both among OPEC members and outside the organization.
The IEA cited the major supply disruptions from May as a major driver of the rebalancing. It also said it didn’t expect Libya to ramp up its output in any meaningful way capable of affecting global prices any time soon and cautioned Venezuela’s oil industry will soon feel the crunch of an economy crashing down hard.
Now, that’s really good news for a lot of people but there’s no way of knowing at all what will happen ion the second half of the year, so I[‘d say optimism should be guarded. True, the Niger Delta Avengers have threatened the attacks on oil infrastructure will continue if their demands are not met by the government, which makes any peace accord shaky. True, Libya is nowhere near to solving its political problems, which have affected its oil industry big time. But it’s also true that the moment shale boomers started adding rigs, oil slipped below the $50 threshold it had taken it so much time (and effort) to reach.
The market is sensitive, possibly more sensitive than ever, with the oil glut coinciding with constant worries about the global economy — a combination that has made investor sentiment as erratic as a cat on caffeine.
IEA has had the good sense — as it always does — of hedging against unexpected events by noting that there is still a lot of production capacity in both Nigeria and Libya that could come on stream before 2016 is over and that there is no certainty that the demand growth will continue at the same rate. There isn’t any fundamental reason for it, after all, not a solid one.