If the International Energy Agency (IEA) sounds bullish then oil bears had better get out of the way. Oil prices might be breaking out of their month-long wicked trading range as the normally pessimistic IEA is sounding pretty darn bullish. Not only are they raising their demand forecast, but they are also calling on OPEC to increase output by almost 5 million barrels of oil per day!

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The IEA says that oil demand in 2021 is forecast to reach 96.7 mb/d, an increase of 5.7 mb/d from 2020. Despite weaker-than-expected data for 1Q21, annual growth has been revised up by 230 kb/d on average to take account of better economic forecasts and robust prompt indicators. The IEA says that the world oil supply rose 1.7 mb/d in March to 92.9 mb/d after the shut-in U.S. output recovered from a cold snap. Further gains from the US, Brazil, and biofuels are set to lift global supply in April, while producers taking part in OPEC+ cuts continue to limit flows. Non-OPEC+ will see gains of 610 kb/d in 2021 after a 1.3 mb/d drop in 2020. U.S. supply is set to fall 100 kb/d after a 600 kb/d loss in 2020.

Global refineries caught up with year-earlier levels in March for the first time since 2019, rising by 1 mb/d m-o-m on a strong recovery in the U.S. following February’s freeze. At 75.9 mb/d, global refinery runs were nevertheless 4.4 mb/d below March 2019. Crude throughput is forecast to rise by 6.8 mb/d from April to August, resulting in average annual growth of 4.5 mb/d.

OECD industry stocks fell for the seventh consecutive month in February, by 55.8 mb or 2 mb/d, led by a sharp draw in product inventories (-66.8 mb). At end-February, total oil stocks stood at 2 977 mb, reducing the overhang versus the 2016-2020 average to 28.3 mb. March data for the US, Europe, and Japan show that industry stocks were built by a combined 15.3 mb in total.

Crude prices rose ~$3.35/bbl m-o-m in March and were up a steep $32/bbl on year-ago levels. Stronger economic prospects have steadily boosted prices from November. They hit a 22-month high in mid-March, before easing on plentiful supplies. Brent currently trades around $63/bbl and WTI $60/bbl. Ample supply has also weighed on physical crude price differentials for many grades.

Yet IEA says that the market does not face an impending supply crunch. By July, OPEC+ will still have close to 6 mb/d of effective spare production capacity, excluding some 1.5 mb/d of Iranian crude now shut in by sanctions. The bloc’s monthly calibration of supply may give it the flexibility to meet incremental demand by ramping up production. IEA, I would not bet on that.

The API reports also showed a big drop in crude supply yet a surprisingly large increase in gasoline supply. The API showed that crude was down by 3.608 million barrels as Cushing, OK rose by 917.00 barrels. Yet more than likely a flood of gasoline imports caused an increase of 5.565 million barrels of supply. Yet a -3.006 drop in distillates gave the report an overall bullish tilt.

Natural gas may have finally bottomed. Andrew Weissman of EBW Analytics says that the May natural gas contract closed at $2.619/MMBtu on Tuesday—up 16.6¢ (6.8%) from last Tuesday’s intraday low—as rising spot market demand and bullish weather shifts helped reverse the meek narrative of the past six weeks. While momentum may carry the front-month higher later this week, challenges remain next week as heating demand relaxes, record pipeline exports to Mexico weaken, and LNG flows dip on maintenance. Still, rising planned injections by Local Distribution Companies and modestly supportive weather reduce the likelihood of any significant price declines. By the 30–45-day window, bullish demand catalysts abound for natural gas. And the mere absence of the bearish weather that hung over the market for most of the past six months could make way for strong core fundamentals to drive futures higher.