The International Energy Agency (IEA) has said the oil market could stay oversupplied for longer than expected due to rising production and limited output cuts by some OPEC exporters.The Paris-based IEA said in its monthly report released on Thursday that rising consumption in Germany and the United States was helping boost oil demand but the world still faced a fuel glut.
“This month, there are two hitches: a dramatic recovery in oil production from Libya and Nigeria and a lower rate of compliance by OPEC with its own output agreement,” IEA said, adding that the development raised doubts about the pace of rebalancing demand and supply in the oil market.
“It is OPEC’s business to manage its output and we must wait and see if the changing supply picture from the group as a whole forces an adjustment to the current arrangements,” IEA also said.
Global oil supply rose sharply by 720,000 barrels a day (bpd) in June as Nigeria, Libya and Saudi Arabia raised output, causing compliance with the OPEC deal to drop to 78 percent from 95 percent in May.
At the end of last year, OPEC members pledged to curb production by about 1.2 million bpd between January this year and March 2018, while Russia and other non-OPEC producers agreed to hold back about half as much.
Prices had rallied in anticipation of OPEC’s output cuts, but have since declined by around 15 percent to just $45 a barrel since the supply deal started in January.
US shale production resilient
Oil prices dropped in recent weeks to levels not seen since November 2016 as investors lost faith in the deal, while US shale oil production rose sharply.
Global inventories also remain persistently high after a modest drop among industrialized nations in May. Stocks were some 266 million barrels above the five-year average, the IEA said. This is spreading doubt about the chance of the market recovering next year, even if the slide in prices may blunt expectations for surging shale growth in the US.
“Such is the resilience of the US shale sector that we should be careful to pronounce that its expansion will slow, however it could be that the recent exuberance is being reined in,” the IEA report said.
Growing demand
Nevertheless, the IEA believes strong demand growth – forecast at 1.4 million bpd in both 2017 and 2018 – may still help reduce bloated inventories in the second half of this year.
As a result, it revised its demand forecast up marginally from the previous month. After “lackluster” oil demand growth in the first quarter, “there was a dramatic acceleration” in the second quarter, “due to a combination of expected increases in India, and some surprise additions in the US and Germany,” it said.
In total, global oil demand was projected to reach 98 million bpd this year. And it was set to increase at around the same pace again next year to 99.4 million bpd. Producers are now set to meet in Saint Petersburg in Russia on July 24 to review the output situation.
uhe/bb (Reuters, dpa, AFP)
