Oil Price Volatility Intensifies Amid OPEC Output Constraints

As the Organization for Economic Cooperation and Development (OECD) nations accelerated their draw on commercial stocks to 2.7 million barrels per day in December, the International Energy Agency (IEA) warns that price volatility is likely to intensify in the absence of an early easing of OPEC output constraints. The IEA's latest Monthly Oil Market Report highlights the lowest year-end level of commercial stocks in a decade, projecting a larger first-quarter drawdown if additional oil output is not forthcoming. Meanwhile, world oil output averaged 74.6 million b/d in January, with non-OPEC output holding steady and OPEC crude output increasing, mostly from Iraq.

Key Takeaways:

• The IEA reports that OECD nations accelerated their draw on commercial stocks to 2.7 million barrels per day in December, the largest decline in over a decade.
• The IEA projects a larger first-quarter drawdown if additional oil output is not forthcoming, adding to the risk of spot shortfalls and heightened volatility.
• World oil output averaged 74.6 million b/d in January, with non-OPEC output holding steady and OPEC crude output increasing, mostly from Iraq.
• The IEA has revised downward its projected 2000 call on OPEC crude by 0.4 million b/d due to adjusted demand forecasts and upward revisions to non-OPEC supply.
• The agency is concerned that the potential increase in output may be "too little, too late" against the backdrop of record-low inventory levels and persistent strength in world demand.
• There is concern about potential pressure on the price of gasoline this summer due to low inventories in the US and Europe and still-low operating rates of refineries.
• The IEA asks how low is "too low" for inventories, acknowledging that minimum operating levels have diminished due to technological advancements, but potentially increasing the risk of supply disruption and price volatility.

Statistics:

• 2.7 million barrels per day: the accelerated draw on commercial stocks by OECD nations in December.
• 74.6 million b/d: world oil output averaged in January, with non-OPEC output holding steady and OPEC crude output increasing.
• 0.4 million b/d: the IEA's revised downward projected 2000 call on OPEC crude.
• 0.1 million b/d: upward revision to non-OPEC supply projections for 2000.
• 0.3 million b/d: downward adjustment to forecast global demand for 2000.
• 2.7 million: the first-quarter drawdown projection if additional oil output is not forthcoming.

Sources:

• International Energy Agency (IEA) - Monthly Oil Market Report
• David Knapp, editor of the IEA's monthly report, as quoted in the article.