Worries about the growing oil glut in the U.S. are reaching a fever pitch as the International Energy Agency is warning they will continue to build inventory and that prices could once again fall. Oil futures lost ground after Genscape, the private forecaster, reported that over 2 million barrels of oil went into the NYMEX delivery point yet they reported a much smaller increase last week. With refinery maintence season in full swing, renewed talk of another price drop is probably being overhyped but the crazy calls of $25 and $10 a barrel are still out there.

The IEA, as reported by Reuters, said that the United States may soon run out of spare capacity to store crude, which would put additional downward pressure on prices. That process would last at least until the second half of 2015, when growth in U.S. oil production is expected to start abating. Combined with an increase in global demand, the expected U.S. production slowdown would give some support to oil prices and respite to oil producers group OPEC, the IEA said. On the face of it, the oil price appears to be stabilizing. What a precarious balance it is, however, the Paris-based IEA said in its monthly report. They say that Behind the façade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly.

The IEA also is warning that the key to future price moves driven by U.S. energy output cuts. While the U.S. supply response to lower prices might take longer to kick in than expected, it might also prove more abrupt, it said, adding that growth would abate in the second half of 2015.

Oil also saw pressure after the Genscape report that showed a 2.2 million barrels between March 6 and March 10. Bloomberg reported West Texas intermediate (WTI) oil widened its discount to Brent oil as U.S. inventories rose to the highest level since records of weekly data started in 1982. Meanwhile, the Houston Ship Channel reopened to traffic Thursday, allowing refineries to receive crude imports. WTI also dropped as Genscape reported stockpiles at Cushing, Okla. continued to climb through Tuesday, according to Phil Flynn, senior market analyst at Price Futures Group in Chicago.

We also saw pressure in products after the Houston Shipping Channel reopened  As I told Reuters “ ship channel opening allows crude to get to refineries and the expectation is that with margins strong, refiners will produce as much as they can, said Phil Flynn, analyst at Price Futures Group in Chicago. After indicating on Wednesday that it was lowering throughput because the Houston Ship Channel was shut, Exxon Mobil Corp said on Thursday the company could confirm that we are receiving crude shipments soon and will be adjusting rates accordingly at its giant, 560,500-barrel-per-day (bpd) Baytown, Texas, refinery.

“The Houston Ship Channel was fully reopened on Thursday morning, after responders completed initial salvage operations on a damaged chemical tanker and successfully moved the vessel, the Central Texas Coastal Area Committee said.”

Reuters also reported that refined products futures also felt pressure from news, first that the industry was expected to make a fresh contract offer and then news that a tentative deal was reached with the United Steelworkers to end a strike by refinery workers that has lasted 40 days. The strike news is mainly psychological in that it hasnt yet had a big impact on production, Flynn said. But a settlement would soothe concerns about the possibility the strike could eventually hurt output. Based on the U.S. April crude and April products contracts, both the gasoline and ULSD crack spreads ere over $27 per barrel.

The oil markets big focus today will be the U.S. oil rig count. Reuters reported that the IEA said steep drops in the U.S. rig count have been a key driver of the recent price rebound, which saw Brent crude rising to $60 per barrel after falling as low as $46 in January from last years peaks of $115. Yet U.S. supply so far shows precious little sign of slowing down. Quite to the contrary, it continues to defy expectations, the IEA said.  In February, non-OPEC production is estimated to have risen by about 270,000 barrels per day (bpd) on a month-on-month basis to 57.3 million bpd, led by higher output in North America. Global supply rose by 1.3 million bpd year-on-year to an estimated 94 million bpd in February, led by a 1.4-million-bpd gain for non-OPEC producers. “

Reuters also said that the IEA raised its demand forecast for the second half of 2015, which in turn led to a higher call on OPEC crude of 30.3 million bpd in the same period closer to the groups real production levels and the official target of 30 million bpd. Having bottomed in the second quarter of 2014, global oil demand growth has since steadily risen, with year-on-year gains estimated at 1.0 million bpd for the first quarter of 2015, the IEA said.

The forecast of demand growth for 2015 as a whole has been raised by 75,000 bpd to 1.0 million bpd versus the last report and versus the 680,000 bpd growth seen in 2014, bringing global demand this year to an average of 93.5 million bpd.

Tentative signs of a demand recovery have emerged with the turn of the year, with a heavy emphasis reserved for the word ‘tentative’, the IEA said. In other bullish factors beyond political instability in certain producing countries such as Iraq and Libya refined product markets have proved unexpectedly strong, the IEA said.

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