International Energy Agency says oil market remains loose

The world's leading energy watchdog said the battle for market share between Opec and its high cost rivals has "just started" with little evidence to suggest the price crash has significantly curbed supplies.

While the US production growth has slowed in the face of lower oil prices, the rebound of late could stop output from falling too far, said the International Energy Agency on Wednesday.

Others outside of Opec, which account for two-thirds of the world's oil output, have proved to be resilient while the cartel is ramping up its own production, the Paris-based group said in its closely followed monthly report.

"It would thus be premature to suggest that Opec has won the battle for market share," the IEA said. "The battle, rather, has just started."

The IEA said supply was still outstripping demand as it made only small revisions to its forecasts for output and consumption. Global supply growth was higher year on year by 3.2m barrels a day in April, "extending the first quarter's massive gains" and far outstripping the rise in demand.

The Saudi Arabia-led decision by Opec in November not to cut production and to fight for market share against higher cost rivals was "only the first step" of a strategy, the energy watchdog said.

The plan also includes "ramping up output and aggressively investing in future production capacity, even as their non-Opec counterparts keep tightening their belt", the IEA said

Opec crude supply rose 160,000 b/d to 31.21m b/d in April - the highest since September 2012 - and nearly 1.4m b/d above a year earlier, the report showed.

Even though US shale output growth "buckled" last month following months of cost-cutting and a 60 per cent fall in rigs drilling for oil, the IEA said the oil market still looked "relatively loose".

Non-Opec supply growth outside the US had proved to be resilient in places and "defied expectations", the IEA said, citing Russia and Brazil as examples. "The rest of the oil patch [outside of the US] is not standing still."

The IEA lifted its 2015 forecast for non-OPEC supply growth by 200,000 b/d from last month's report, with these producers adding 830,000 b/d of additional supplies this year.

The IEA said the first drop in US crude oil stocks since January last week did not spell the end of inventory builds, pointing to a rising refined product stocks such as petrol and diesel.

In addition, the report noted several large US shale producers had spoken about their ability to achieve cost savings in recent weeks, and producer hedging had risen steeply, as companies took advantage of the recent rebound in prices to lock in profits.

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The report showed the world's top exporter, Saudi Arabia, held flows above 10m b/d while the Kingdom's allies in the Gulf are also raising their drilling rig count.

Iran's production climbed 90,000 b/d to 2.88m b/d last month, the highest level since July 2012 when international sanctions on its crude exports were first put in place. Iraqi output reached another post-1979 high, up to 3.8m b/d.

The upward revisions to non-Opec supply lowered the call, or demand, for the cartel's crude by 300,000 b/d for the second half of this year to 30m b/d, the agency said.

The IEA said it estimated global oil demand growth of 1.1m b/d this year - up from 700,000 b/d in 2014 - to 93.6m b/d on an improved outlook for industrialised nations.

Despite accelerating to about 1.4m b/d in the first quarter this year, an upward revision of 130,000 b/d from last month, demand growth is expected to slip over the remaining months of 2015.

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