The surplus in global oil markets will last for longer than previously thought, persisting into late 2017 as demand growth slumps and supply proves resilient, the International Energy Agency said.
World oil stockpiles will continue to accumulate through 2017, a fourth consecutive year of oversupply, according to the IEA. Consumption growth sagged to a two-year low in the third quarter as demand faltered in China and India, while record output from Opec’s Gulf members is compounding the glut, it said. Just last month the agency predicted the market would return to equilibrium this year. “Supply will continue to outpace demand at least through the first half of next year,” the Paris-based adviser said in its monthly report. “As for the market’s return to balance – it looks like we may have to wait a while longer.”
Almost two years after the Organisation of Petroleum Exporting Countries set a strategy to eliminate the global oil glut by pressuring rivals with lower prices, markets continue to struggle with excess supply and crude remains capped below $50 a barrel. The organisation plans to hold informal talks with competitor Russia in Algiers later this month, fanning speculation that producers may agree on an output cap to shore up prices.
“This a marked shift in outlook by the IEA, which not too long ago was contemplating a re-balancing of the market in 2016,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas in London. Opec’s “long game got a little longer, implying the need for oil prices to remain lower for longer to spur the necessary adjustments in supply.”
The IEA trimmed projections for global oil demand next year by 200,000 bpd to 97.3mn a day. It reduced growth estimates for this year by 100,000 bpd to 1.3mn a day, citing a “dramatic deceleration in China and India” this quarter coupled with “vanishing growth” in developed economies.
“Recent pillars of demand growth – China and India – are wobbling,” said the IEA, which counsels 29 nations on energy policy. “The stimulus from cheaper fuel is fading. Refiners are clearly losing their appetite for more crude oil.”
Supplies outside Opec will rebound next year after this year’s sharp decline, rising by 380,000 bpd, according to the report. The estimate is “marginally” higher than last month, driven by the stronger-than-expected performance of Norway and Russia. US shale-oil production will begin to recover in the second half of 2017, it said.
“Opec is trapped,” said Olivier Jakob, managing director of consultants Petromatrix GmbH in Zug, Switzerland. “Non-Opec supply has been able to adjust better than expected to the lower oil prices.”
Production from Opec’s 14 members rose slightly last month as Gulf countries Saudi Arabia, Kuwait and the UAE pumped at or near record levels and as Iraq pushed output higher, the IEA said. Saudi Arabia has overtaken the US as the world’s largest oil producer – when non-crude forms like natural-gas liquids are included – a ranking America held since April 2014.
Oil tumbles near 3% after IEA, Opec see surplus persisting
Oil prices fell as much as 3% yesterday after both the world’s consumers and producers revised forecasts that signalled the global crude glut persisting for much longer than previously expected.
Brent crude was down $1, or 2%, at $47.32 a barrel by 11.26am EDT (1526 GMT). US West Texas Intermediate crude fell $1.25, or 2.7%, to $45.04.
The International Energy Agency (IEA), which advises oil-consuming countries on their energy policies, said a sharp slowdown in oil demand growth, coupled with ballooning inventories and rising supply, means the market will be oversupplied at least through the first half of 2017.
The IEA’s comments follow a surprisingly bearish outlook from the Organisation of the Petroleum Exporting Countries on Monday that also pointed to a larger surplus next year.