An emerging increase in oil demand may bring the heavily oversupplied oil market back into balance earlier than anticipated, according to the International Energy Agency (IEA). While the IEA left its demand outlook for oil unchanged at a solid 95.6 million barrels a day (mb/d), up 1.2 mb/d, it noted that global demand grew strongly in the March quarter despite a milder than usual northern hemisphere winter. Previous monthly oil reports from the IEA talked about the world being "awash" with oil and a chronic oversupply likely to stay in place well though 2016. However, the IEA now expects there will be a dramatic reduction in global oil stocks in the second half of the year. "This strong first quarter performance might raise expectations that demand will remain at this stronger level causing us to raise our average figure for 2016," the IEA said "On the other hand, there are economic headwinds identified by the International Monetary Fund that, in April, revised down its expectations for global GDP growth in 2016 and 2017." The shift in language initially helped lift oil prices, before profit takers moved in, satisfied with the almost 80 per cent oil has gained since hitting a trough well below $US30 a barrel in January. Build up of oil stocks are 'beginning to slow' The key global benchmark price for Brent oil finished the session up 1.3 per cent to $US47.90 a barrel. "The net result of our changes to demand and supply data is that we expect to see global oil stocks increase by 1.3 mb/d in the first half of 2016 followed by a dramatic reduction in the second half to 0.2 mb/d," the IEA said. Already the build up of oil stocks are beginning to slow in developed nations, with stores growing at their slowest pace in more than a year, and a drawdown in inventories reported in February. The Paris-based energy advisor to the OECD found that there is a significant transition occurring, with India taking over from the China as the main growth market for oil. "India is the star performer: oil demand [in the first quarter of 2016] was 400,000 barrels a day higher year-on-year, representing nearly 30 per cent of the global increase," the IEA noted. On the supply side Iran's oil production rose more rapidly than expected - up to 3.6mb/d - to levels last seen in 2011. More importantly for oil prices, Iran's now sanction-free exports jumped to 2mb/d in April, a 40 per cent increase on the 1.4mb/d shipped out just a month earlier. Offsetting Iran's rise, production looks like falling in strife-torn Libya, Nigeria and Venezuela where the oil industry has been hit by power cuts and other shortages.
