Oil Rallies on Bullish IEA Outlook

NEW YORK (DTN) -- New York Mercantile Exchange oil futures recouped Thursday's losses as regular trading gets underway Friday morning, with April West Texas Intermediate posting a fresh three-month spot high after the International Energy Agency sharply cut its estimate for oil production by countries that are not part of the Organization of Petroleum Exporting Countries.

"The International Energy Agency is now starting to see things [in a bullish way], saying a bottom for oil may be in," said analyst Phil Flynn at Price Futures. "This sets the stage for a market rally as traders await the news today [about] the Baker Hughes rig count number [that] may report that the rise in operation could fall to the lowest level."

Also in a change from Thursday, the equity market is giving a second look to the European Central Bank's stimulus measures announced Thursday. There's a rally underway in equities following a change in sentiment, with analysts saying the stimulus measures would boost economic growth, which bodes well for oil demand.

Other analysts noted IEA's comments that oil supply and demand would probably rebalance in the second half of 2016. Taken together, these bullish issues have offset short-term technical pressure and current excess supply for crude oil in the United States.

At last look, NYMEX April WTI crude futures rose 78 cents to $38.62 barrel, off a $38.98 three-month high on the spot continuation chart. WTI futures are on course to post a fourth straight weekly advance.

May Brent crude futures trade on the IntercontinentalExchange rose 63 cents to $40.68 bbl amid inside trade, with Brent's premium over WTI narrowing 15 cents to $2.06 bbl.

In products trade, NYMEX April ULSD futures climbed 1.62 cents to $1.2323 gallon while April RBOB futures edged up 0.41 cents to $1.4431 gallon.

On Wall Street, U.S. stock indices moved higher, with the dollar bouncing off Thursday's one-month low.

In its Oil Market Report released this morning, IEA revised lower by 100,000 barrels per day its outlook for oil production this year non-OPEC producers, projecting non-OPEC output at 57.0 million bpd, down 750,000 bpd from its forecast in February.

In February, global oil supply declined 180,000 bpd from January to 96.5 million bpd with lower production from OPEC and non-OPEC producers. Still, oil production was 1.8 million bpd above year prior, with a slight year-on-year decline in output by non-OPEC more than offset by production growth from OPEC.

Crude oil production by OPEC in February declined 90,000 bpd to 32.61 million bpd despite a "substantial rise in flows from post-sanctions Iran," said IEA.

Lower output from Iraq, Nigeria and the United Arab Emirates reduced OPEC's production on the month, but Saudi Arabia output was unchanged in February from January.

In a separate report, IEA said the price of Brent crude might have reached a bottom in mid-January at $28.50 bbl, but added the price recovery from the low "should not, however, be taken as a definitive sign that the worst is necessarily over."

On Thursday, oil futures fell after a Reuters report said OPEC and Russia would not freeze their oil production because Iran refused to participate. Iran has repeatedly said it wants to raise its output to pre-sanctions level before joining any plan to freeze or cut output.

IEA also reportedly commented on the issues, noting that previous attempts by OPEC to coordinate cuts with Russia have not worked. In 2001, Russia agreed to curb production, but actually increased exports.

A new report by Boston-based research firm ESAI Energy also said Russia will export about 180,000 bpd more crude in 2016 compared to last year. ESAI said exports through pipelines and Far East ports leading directly to Asia would only increase 50,000 bpd, with the remainder of the growth coming from outflows from European ports to Asia.

"Higher exports from European ports will encourage greater outflows of Russian crude from Europe to Asia, intensifying the battle for market share there as well as in Europe," said ESAI.

George Orwel can be reached at george.orwel@dtn.com