IEA Highlights Increases in Oil Supply

A relentless increase in oil supply from the U.S. and Canada and a surprise surge in Iraqi crude production last month is offsetting demand pressures bought about by the cold winter in the U.S. and geopolitical concerns over the rising tensions between Russia and Ukraine, the International Energy Agency said Friday.

"While international tensions may be on the rise, pressure on oil markets, ceteris paribus, seems set to ease," the Paris-based energy watchdog said in its closely-watched monthly report on the oil market.

The cold snap in the U.S., which has seen commercial oil inventories in industrialized countries plummet this winter to hit a whopping 154 million barrels below the seasonal average last month, is abating. Meanwhile, oil supply looks comfortable. The IEA expects supply from outside the Organization of Petroleum Exporting Countries to rise by 2 million barrels a day in the first quarter of the year, while a surprise surge in Iraq's output last month boosted OPEC's output to more than 30 million barrels a day for the first time in four months.

Iraq's oil production rose to its highest level since 1979 in February, jumping by half a million barrels a day to reach 3.6 million barrels a day, the IEA said. Exports soared by almost 600,000 barrels a day to hit 2.8 million barrels a day as major bottlenecks at the country's southern port of Basra were finally removed.

The exceptional increase in oil exports is a big boost for the country, which has struggled to meet ambitious oil production targets it has set for itself in recent years. However, analysts questioned whether February's increase in output is sustainable.

Nonetheless, "the latest spike in Iraqi exports proves that even in the face of these obstacles, Iraq's huge potential as supplier cannot be dismissed," the IEA said.

Elsewhere, the IEA also raised its forecast for demand growth this year by 100,000 barrels a day to 1.4 million barrels a day on expectations of a more robust economic backdrop.

On Wednesday, OPEC made a similar move, upgrading its forecast for demand growth this year for the second month in a row. The oil-producing cartel increased its forecast by 50,000 barrels a day to 1.14 million barrels a day.

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