Rising US oil stockpiles trigerred drop in Brent futures, IEA says

The recent drop in crude futures is mainly the result of a renewed build-up in US oil stockpiles amid a relentless ramp-up in OPEC's production in the run-up to its November output cut deal which was still feeding through the system, the rich world's energy watchdog said.

In January, the rise in US inventories was enough to reverse the downward trend in stockpiles seen in the developed world (OECD) over the previous months.

That should not come as a surprise to anyone, the International Energy Agency said in its Oil Market Report for March.

"So, the market is still dealing with a vast amount of past supply, which will take time to work its way through the system. Meanwhile, demand growth has not provided any further encouragement after three consecutive months when we upgraded our estimates," the IEA said.

Prior to the OPEC Vienna agreement in November, inclusive output from the cartel surged by 580,000 barrels a day from September to November - with export volumes still showing up around the globe

That was reflected in rising US imports year-to-date (exports were also higher) which were running at 400,000 b/d more than a year ago and combined with higher domestic output, which was up by another 400,000 b/d since September 2016, and a drop in refinery utilisation rates.

Refinery runs had dropped from 17.0m b/d at the beginning of 2017 to 15.5m b/d, the IEA said.

At the OECD level, oil stockpiles began falling in August from record high levels and were down by 120.0m barrels at the end of December for an average rate of decline of 800,000 b/d. However, in January that trend "abruptly" reversed with a 48.0m barrel build (a rate of 1.5m b/d).

Furthermore, data for February suggests they have fallen back again only modestly, according to the IEA.

On top of that, the watchdog revised down its forecast for demand in the first quarter of 2017 by 0.3m b/d, although its projection for all of 2017 was unchanged as its fourth quarter estimate was revised up by a similar amount.

As an aside, reports on Wednesday morning indicated that Saudi Arabia had supplied 90,000 barrels a day less oil to markets in February for a daily total of 9.9m barrels as the extra supplies reported the previous day were put into storage.