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Rebound in oil prices built on shaky foundation

15 March 2015, 08:58

Paris - A recent rebound in oil prices is built on flimsy foundations, the International Energy (IEA) Agency warned on Friday, with another sharp fall possible and few signs that cheap fuel was giving growth a real boost.

Oil prices plummeted by 60% between June and January, but have since come off six-year lows and stabilised somewhat, with London's benchmark Brent trading around $60 per barrel and WTI in the United States fluctuating around $50 per barrel.

"Behind the facade of stability, the re-balancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly," said the Paris-based IEA, which advises energy consuming nations.

It noted that a key driver in the recovery in oil prices, with Brent being up by 30% from the lows it touched in January has been drops in the number of rigs drilling for shale oil in the United States.

"Yet US supply so far shows precious little sign of slowing down. Quite to the contrary, it continues to defy expectations," said the IEA in its monthly Oil Market Report, which sharply revised up its output estimates for the end of last year and forecasts for the begging of 2015.

With US crude stocks striking all-time records, it noted storage capacity limits may soon be tested.

While this would encourage the supply cuts that have so far remained elusive, the IEA warned "...it might also prove more abrupt."

The IEA said global supply rose by an estimated 180 000 barrels per day in February to 94.0 million barrels per day (mbd) due to expanding production in countries outside the Opec oil cartel.

Non-Opec supply is still expected to grow this year, by 750 000 bd, but this is much lower than the 2.1 mbd gain in 2014.

Meanwhile, oil demand has also been picking up. The IEA raised its demand forecasts for every quarter this year, with the annual 2015 figure bumped up by 100 000 bd to 93.5 mbd.

The increase is somewhat deceptive, the IEA noted, as it rests partially on one-off factors as cold weather and a low point of comparison the previous year.

The IEA said "there are still few firm signs at this stage that lower prices are giving the economy a real boost. China, for one, remains in cooling mode."



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