The world’s most prominent oil forecaster, the International Energy Agency, anticipates near-equilibrium between supply and demand in global crude markets next year. If Opec members can’t resolve some massive output disruptions, that will turn into a significant shortfall.
World oil production in 2017 will very nearly match consumption, ending several years of oversupply, the Paris-based IEA forecast on June 14. For that to happen, the Organisation of Petroleum Exporting Countries would have to pump an extra 650,000 bpd over the year, according to Bloomberg calculations based on IEA data. That would require solutions to militant attacks in Nigeria, deep political divisions in Libya or an economic crisis in Venezuela.
“The IEA is highly optimistic in its assumption of elevated Opec supplies next year,” said Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd in London. “Even though many view outages in Libya and Nigeria as unplanned, we would argue they are partly symptomatic of low oil prices and unlikely to be resolved any time soon.”
The supply and demand forecasts from the IEA, which advises 29 nations on energy policy, are important because they shape trading. The price of Brent crude has been on a roller coaster since 2014, with a global surplus driving it down 75% to a 12-year low of $27.10 a barrel in January, only to rebound to about $48 Thursday amid supply disruptions and unprecedented investment cuts.
By the end of next year, Opec will need to pump nearly 1mn barrels above last month’s production level to keep the market in balance, according to Bloomberg calculations based on IEA data. The agency doesn’t publish the Opec production level it assumes to calculate its balances and its press office declined to provide the figures or comment on the basis for its assumptions.
Fulfilling the IEA’s forecast would require Opec to overcome some major hurdles. In Nigeria, oil production has slumped to a 28-year low of 1.37mn bpd - about 480,000 below its full capacity, IEA data show. A militant group calling itself the Niger Delta Avengers has been targeting pipelines and other infrastructure in the African nation for several months.
Libyan output remains just a fraction of the 1.6mn bpd pumped before the toppling of Muammar Gaddafi in 2011. The nation pumped 270,000 bpd in May, a decrease of 80,000 from the previous month as a dispute between rival governments in the west and east halted tanker loading at the port of Hariga for several weeks. Many of the country’s oil fields and export terminals are in the hands of armed groups with competing interests.
In Venezuela, a severe economic crisis brought about by the slump in oil prices is making it difficult for the state oil company to pay its contractors for work necessary to sustain output, the IEA said. Output last month was 2.29mn bpd, the lowest since 2009, and the Latin American nation is on track for a drop of 100,000 bpd this year, it said.
Some additional output could be provided by Iran, which is restoring exports after nuclear-related sanctions were lifted in January. The Gulf nation will boost output to more than 3.7mn bpd next year, having pumped at a five-year high of 3.6mn in May, according to the IEA. Saudi Arabia, the world’s biggest exporter, could also increase output during the summer months to cover an increase in domestic demand, it said.
After two years of oversupply, the world’s most industrialised countries have more than 3bn barrels of oil in storage. This “enormous inventory overhang” reduces the prospect of “a significant increase in prices,” according to the IEA.
The agency estimates that inventories will decline very slightly in 2017, by an average of 100,000 bpd over the year. That narrow shortfall assumes Opec will pump 33.3mn barrels of crude a day, compared with the organisation’s May output of 32.6mn a day.