The oil market is having trouble assessing how oil producers, especially in the US, are stepping into the breach left by Opec/non-Opec output cuts. Throw in expectations of higher demand, and you have a market where Brent first lost almost 10% of its value and then rose again by 5% in the past month. Fuel prices at UK retail stations have caught up with the downturn in crude markets in the first half of February, but not yet with the subsequent rise. Pump prices were not much changed on average in February from January, whereas Brent was lower by $3.35/bl or almost 5%.

Market participants agree that demand is rising, but views vary widely on whether supply will keep up. An Argus survey of analysts shows average forecasts of first-quarter prices at $64.33/bl, compared with an actual average of $67.48/bl so far. But the range of forecasts is wide, from $55/bl to $75/bl, reflecting divergent assessments of demand growth, Opec’s appetite for continued production cuts and current global stock levels.

Stocks, the focus of Opec’s policy, are becoming a hot topic. The declared aim of Opec and its non-Opec partners in their 1.7mn b/d production cut is to bring OECD stocks back to their five-year average. They are fast achieving this goal and may already have done so partly because the five-year average is being pushed up by the high inventories of 2016-17. Stocks are still 125mn bl higher than three years ago, but their surplus to the five-year average has shrunk by one-third.

The other problem with Opec’s goal is the growing significance of non-OECD stock levels in the global oil market balance China’s in particular. The country does not report its stocks, so Opec has not included them in its metrics.

Demand growth will focus on middle distillates this year, driven by demand for diesel. The current cold spell in Europe is contributing to distillate consumption in the short term, as Germany, Europe’s largest heating oil market, burns more than usual. This is keeping diesel margins healthy at above $12/bl in the past month and is sure to feed through to UK retail prices.