Oil Falls as Investors Wait for Inventory Data

“Oil is range-bound. If prices dip below $50 a barrel, OPEC will cut more; if it goes above $55 the US will produce more”, said Jonathan Barratt, chief investment officer at Ayers Alliance in Sydney.

Just before the minister addressed media, Fatih Birol, International Energy Agency executive director, told reporters that India and China would be responsible for about half of oil demand growth.

The market, meanwhile, braced for USA crude inventory data later Tuesday that is forecast to show a 1.9 million-barrel build for last week, the ninth straight weekly increase in stocks that are already at record highs.

Oil dropped below $53 a barrel as US industry data showed crude stockpiles expanded last week, adding to an inventory overhang. Against this backdrop, global spare production capacity will decline “big time”, Birol said, putting it at risky levels, close to levels in 2008, when prices spiked to $147 per barrel.

The IEA has pegged Canadian production growth at around 800,000 barrels per day by 2022, putting total production at 5.3 million bpd, up from 4.5 million bpd in 2016.

The Azerbaijani Energy Ministry revised its forecast for oil output, following the struck of the first since 2001 deal between OPEC and non-OPEC states to curtail oil output jointly.

Recently, the US Energy Information Administration reported in its monthly Drilling Productivity Report that output from seven major shale plays in the US would rise 80,000 b/d from February to March.

The NOC said in a statement in December that Libya reopened several pipelines that had been blockaded by militants since 2014, and was going to increase oil production by 270,000 barrels a day within three months. The advent of US shale oil may have discouraged oil companies from investing in larger, longer-term projects, he said. “But this is no time for complacency”.

A large potential supply deficit may take hold around 2020, “as demand growth is consistently forecast to outstrip projected increases in global oil supplies”, he said.

“We will not bear the burden for free riders this time”.

Earlier bullish sentiment was based on optimism that OPEC production cuts would ease supply gluts.

The market may ask for much higher supply from OPEC, but that would force the group to burn through its spare capacity, which could shrink to well below 2 mb/d.

He added: “I am optimistic about the global market outlook in the weeks and months ahead – though I caution that my optimism should not tip investors into irrational exuberance’ or wishful thinking that Opec or the kingdom will underwrite the investments of others at our own expense”.

In the short and medium term, demand for oil will continue to rise. The growth in energy demand will be slower than in the past because of increased energy efficiency measures.