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Global oil markets are heading towards a long-awaited equilibrium, according to updated supply and demand data from the International Energy Agency (IEA).
The IEA said in its latest oil market report on Thursday that a rebalancing of supply and demand was starting to become evident from the existing supply and demand data which showed that global oil supply was starting to look more measured. Demand was resilient and a surplus of oil could start to shrink later this year, it added.
"Global oil supplies rose 250,000 barrels a day in April to 96.2 million barrels a day (mb/d) as higher OPEC output more than offset deepening non-OPEC declines," the IEA said in its monthly report.
However, it noted that year-on-year, "world output grew by just 50,000 barrels a day in April versus gains of more than 3.5 million barrels a day a year ago" and noted that 2016 non-OPEC supply is forecast to drop by 800,000 barrels a day to 56.8 mb/d.
Despite the higher output from the 12-country OPEC group, the IEA noted that falling non-OPEC supply and rising demand could cause oil stock growth to decline in the latter half of the year helping the supply and demand dynamic – and crucially, oil prices – to return to a more stable footing.
"The net result of our changes to demand and supply data is that we expect to see global oil stocks increase by 1.3 million barrels a day (mb/d) in the first half of 2016, followed by a dramatic reduction in the second half of 2016 to 0.2 mb/d."
The IEA's Oil Industry and Markets Head Neil Atkinson told CNBC on Thursday that the expected decline in the growth of global oil stocks pointed towards a rebalancing in markets.
"The point being that we have the direction of travel towards balance and a big factor in the change in the stock-build picture between the two halves (of the year) is the major fall-off in production in the non-OPEC countries as a whole."
"The market is very forward-looking and as it looks through the second half of 2016 and into the early part of 2017 there is a growing expectation that the market will, if not actually balance, certainly get very close to balance."
Before investors got too excited, however, Atkinson stressed that global oil stocks remained "enormous" and would time to run-down.
"The problem we've got is that if you want to see higher oil prices in the rest of 2016, what you need to remember is that oil stocks are at very, very high levels – even if they're going to grow by a very small amount compared to what we've seen and they're not likely to start falling until 2017. So there's a big buffer or big dampener on prospective rise in oil prices by the fact that these enormous stocks do exist and will exist for some time to come," he said.
The IEA noted that oil stocks in the OECD (the Organization for Economic Co-operation and Development, which includes most European nations, Australia and the U.S.) declined for the first time in a year in February, lending support to the view that "the global supply surplus of oil will shrink dramatically later this year."
In terms of demand, the IEA left its outlook for global oil demand growth in 2016 at a "solid" 1.2 mb/d, unchanged from last month. But it said that revised first-quarter data showed demand growing faster at 1.4 mb/d, "in spite of the northern hemisphere winter being milder than usual."
"This strong (first quarter of 2016) performance might raise expectations that demand will remain at this stronger level causing us to raise our average figure for 2016," it said, although it noted recent International Monetary Fund forecasts in April, in which the lending agency revised down its expectations for global gross domestic product (GDP) growth in 2016 from 3.4 percent to 3.2 percent.
Interestingly, it said India was the "star performer" in terms of oil demand growth. Oil demand from the rising Asian powerhouse was 400,000 barrels a day higher in the first quarter from the same period last year, "representing nearly 30 percent of the global increase" in demand.
It said that it will publish a detailed forecast for 2017 in next month's report, "thus providing clarity on when the oil market could reach its much-anticipated balance."
Oil markets are being closely monitored for signs of a sustainable recovery as prices have rebounded from a low of around $26 a barrel seen in February to today's price of $47.70 a barrel for Brent crude and $46.30 a barrel for U.S. West Texas intermediate (WTI).
Prices rose on Wednesday after the U.S. Energy Information Administration's (EIA) weekly inventory report showed a decline of 3.4 million barrels, versus expectations of a slight build.
The IEA's Atkinson told CNBC that markets had priced in a continuing decline in non-OPEC production and that unexpected factors had also contributed to a rally in oil prices.
"Another reason why we've had quite a significant increase in prices recently is partly the expectation of a tighter market ahead but also there have been some unexpected disruptions to oil supply – we've seen the Canadian wildfire situation in the last week and bigger fall-offs in Nigeria so there have been some physical factors out there which have meant that supply has been even lower than we thought it would be."
There were hopes that prices could get a boost last month when OPEC and non-OPEC producers met in Doha to discuss freezing production levels but that meeting ended in stalemate, with Saudi Arabia refusing to budge unless Iran did so too. Iran is keen to get its oil industry back on track after years of sanctions and refused to agree to such as deal.
The IEA noted that OPEC crude output rose once again in April and that while Saudi output was steady near 10.2 mb/d, Iranian supply rose to 3.56 mb/d, a level last hit in November 2011 before sanctions were tightened.
All eyes are on the next move by OPEC when it meets on June 2. So far, it has shown no signs of backing down from its decision in November 2014 to produce at full-tilt in a bid to defend its market share against non-OPEC rivals, particularly shale oil producers in the U.S. Saudi Arabia's state-run oil company Saudi Aramco indicated on Tuesday that that its production will trend slightly higher this year.
The country drew attention to itself last weekend when a cabinet reshuffle led to Saudi Oil Minister Ali-al-Naimi being replaced by Khalid al-Falih, the former president of Saudi Aramco. The new minister in charge of the Kingdom's oil policy signaled no dramatic change in policy from the Saudis and the IEA said the next OPEC meeting will be closely watched to see if there are any policy changes ahead.