Possible rise in Iran output, other bearish factors keep Brent range-bound in $50s

Other bearish factors holding sway over the market were tight US oil production remaining close to multi-decade highs despite a 50-per-cent reduction in oil rigs drilling onshore in the country compared with last October’s peak and commercial crude stockpiles in the country growing to all-time highs.

After 12 consecutive weeks of inventory builds, US crude stocks rose to 471.44 million barrels as of March 27, as growing domestic production and steady imports outpaced refinery runs.

Cushing, the delivery point of NYMEX crude, had seen net inflows each week since December 5 and at the trailing four-week average pace of stock-build, was expected to reach tank-top by the end of April.

The oversupply story carried through into April, but growing pressure on the US dollar since the fourth week of March and a last-minute framework agreement among the P5+1 powers – the US, UK, Germany, France, Russia and China – and Tehran on Iran’s nuclear programme being interpreted as a long way off from actually putting additional oil onto the market lent some support to prices when markets opened after the Easter weekend break.

Platts Dated Brent averaged $55.92 per barrel in March, compared with $58.13 in February and $47.86 in January. It had averaged $107.54 in March of last year.

A 36,000 barrel-per-day decline in US crude production to 9.39 million b/d for the week ended March 27, the first weekly decline since January as reported by the US Energy Information Administration, attracted some attention in a market racked by uncertainty.

But it was too small and in itself insufficient data to conclusively signal any reversal in direction for the tight oil boom.

The plentiful supply story was echoed in other parts of the world. Libyan crude production, which has been fluctuating wildly for the past several months, climbed to around 560,000b/d, despite continuing strife and political instability in the country.

Iraq raised its oil exports to 2.94 million b/d in March, a new record high since 1979, and surpassing the December 2014 peak of 2.90 million b/d.

In Yemen, Shi’ite Houthi rebels fighting pitched battles for control amid air strikes by a Saudi-led coalition once again drew market attention to the geopolitical risks in oil.

However, a price rally sparked by the March 26 launch of the air offensive against Yemen fizzed out quickly, once it was clear the conflict did not pose a threat to regional oil supplies and shipping.

Yemen’s own crude production is small, averaging around 100,000b/d prior to the air strikes.

While the glut is by now well documented, the demand side of the equation remains less clear.

Global oil demand growth expectations for 2015 as laid out by the troika of the Paris-based OECD energy policy adviser the International Energy Agency, Opec and the US EIA remained stable at an average of around 1 million b/d going by their latest monthly reports, though individual estimates vary somewhat.

The Brent cracking margin in the Amsterdam-Rotterdam-Antwerp hub averaged $7.37 per barrel in March, up from $5.65 in February and just $1.69 in March 2014, according to Platts data.

Surplus global refining capacity looks set to surge from 3.2 million b/d in 2014 to 5.4 million b/d in 2017, according to the IEA, while Credit Suisse estimates that Europe still needs to close 1.5 million b/d of capacity over the medium term to balance throughputs with demand.

In its vision of world demand growth in 2015, the US EIA pinned its hopes on China and at home.

"China remains the leading contributor to projected global consumption, with demand rising 300,000b/d in both 2015 and 2016."

Vandana Hari is the Asia editorial director at Platts, a global energy, petrochemicals, metals and agriculture information provider and a division of McGraw Hill Financial. She can be contacted at [email protected]