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Sharp drop in OECD oil inventory


OECD commercial oil inventory dropped to its lowest level since 2008 after a stronger than usual 56.8mmbbl stock draw in December, according to yesterday’s IEA Oil Market Report (OMR), and saw inventory levels more than 100mmbbl below the seasonal average. It also makes the draw in 4Q13 the steepest quarterly decline since 1999, while preliminary data points towards a smaller than usual inventory build in January.

Other than a 0.1mmb/d increase in its demand estimate (resulting from the incorporation of the IMF’s latest global economic growth estimates), the IEA left all other forecasts for 2014 unchanged, meaning the ‘call on OPEC crude’ also increased 0.1mmb/d from the previous month’s OMR, to 29.6mmb/d.

OPEC crude production in January was estimated at 29.99mb/d, up 85kb/d MoM, as a drop in Iraqi production was more than compensated for by Libyan production doubling following the start-up of the 350kb/d El Sharara field.

Assuming OPEC crude production remains steady through 2014 at January’s production level, oil markets would be in a 0.4mmb/d surplus. However, after adjusting for the ‘Miscellaneous to Balance’ item which accounts for changes in non-reported OECD and non-OECD stocks, oil markets would be in a slight deficit (-0.1mmb/d).

With visible oil inventories running notably below the seasonal norm, an improving global economic environment and a relatively robust start to the year for the Brent (averaging USD 107/bbl YTD), we see upside risk to our USD 100/bbl forecast for 2014.

Maxim Korovin, Anton Nikitin
VTB Capital analyst


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