Resilient oil demand on the back of improving economic conditions in many major economies seems to be presenting a better outlook for the global energy market this year.
On the world oil demand growth, the International Energy Agency (IEA) sees a better outlook in 2017 and anticipates an increase of 1.4mn barrels per day (bpd) this year.
According to IEA, the Organisation of Petroleum Exporting Countries (Opec) achieved the best compliance rate in its history at the outset of an accord to clear the oil glut, a plan that’s being supported by growing demand.
The Opec implemented 90% of promised output cuts in January, the first month of its agreement, as key member Saudi Arabia reduced production by even more than it had committed, the agency recently said.
Some 11 non-Opec members who joined the agreement have made about half their pledged reductions, according to the IEA.
Opec and Russia are leading a push by global oil producers to end a three-year oil surplus that has depressed prices and battered the economies of energy-exporting nations.
Opec and other big exporters have agreed to trim output by almost 1.8mn bpd during the first half of this year in order to prop up prices and rebalance the market.
Supply from the 11 Opec members with production targets under the deal fell to 29.92mn barrels per day, according to the average assessments of the six secondary sources the organisation uses to monitor output, which translates into 92% compliance.
“This seems to be one of the most successful agreements in terms of compliance,” IEA executive director Fatih Birol said.
The IEA, which advises industrial nations on energy policy, said if current compliance levels hold, the global oil stocks overhang that has weighed on prices, should fall by about 600,000bpd in the next six months.
The agency also raised global oil demand growth expectations for 2017 to 1.4mn bpd, up 100,000 bpd from its previous estimate.
Nevertheless, producers will probably have to extend the production cuts beyond six months if they want to achieve their goal of balancing the oil market.
A recent report indicates as 2017 starts off on a positive note, the Organisation for Economic Co-operation and Development (OECD) storage continues to decline at a pace of about 700k bpd.
As a result of the high-compliance Opec and non-Opec cut, the OECD storage should be back to the five-year average by June this year, the report noted.
Founded in 1960, the Paris-based OECD is an intergovernmental organisation with some 35 member countries, the world’s leading economies, to stimulate economic progress and world trade.
Although US bank Goldman Sachs said high fuel inventories and rising United States crude production meant oil markets would be over-supplied for some time, it noted “they would drain gradually”.
“We do not view the recent excess US builds as derailing our forecast for a gradual draw in inventories, with in fact the rest of the world already showing signs of tightness,” the bank said in a recent note to clients.
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