The International Energy Agency (IEA) anticipates the global oil market will remain oversupplied into 2018 due to rising US oil production and failure of some OPEC members to comply with production targets.
According to IEA’s June market report, total OECD oil stocks in April grew by more than the seasonal norm, and have risen so far this year by 350,000 b/d. IEA said its provisional monthly data for May indicates that OECD stocks may be little changed. However, recent US weekly data suggests that rising domestic production, high imports, low exports, and weaker gasoline demand, have combined to send stocks there higher.
Meanwhile, the implied market deficit for Q2 2017 has narrowed from 700,000 b/d to 500,00 b/d due to reduced demand, primarily because of weaker Chinese and European data, and an increase in global supply, IEA stated.
“Based on our current numbers, assuming stable OPEC production, market deficits should be significant in 2H 2017, although adverse changes to demand and supply data can erode prospective stock draws,” IEA said.
US crude production this year is expected to rise by 430,000 b/d, with production ending 2017 around 920,000 b/d higher than at year-end 2016. IEA estimates US crude production in 2018 will grow year-on-year by 780,000 b/d, but believes the growth rate could be higher.
IEA expects total non-OPEC production to increase by 700,000 b/d in 2017, and to grow by 1.5 MMb/d in 2018, slightly more than the forecast increase in global demand.
The surge in oil production also stems from some OPEC members failing to meet production targets. Iraq has achieved a compliance rate of only 55% so far this year, and Venezuela and the UAE are also laggards. Two OPEC members not included in the deal also have recently seen increases in production: Libya’s output has reached nearly 800,000 b/d, a level not seen since 2014, and Nigeria has announced the lifting of force majeure for Forcados exports, potentially making available to the market more than 200,000 b/d.
“By the nature of these two countries, production could easily fall back,” IEA stated, pointing to Nigeria’s recent announcement of force majeure for Bonny Light liftings. However, if Libya and Nigeria continue to grow their output, these extra barrels dilute the value of OPEC’s output accord and contribute to delaying the re-balancing of the market, IEA noted.
The currency used to express re-balancing is the five-year average level of oil stocks. IEA reported that OECD stocks are currently 292,000 bbl above this level.
“Based on our current outlook for 2017 and 2018, incorporating the scenario that OPEC countries continue to comply with their output agreement, stocks might not fall to the desired level until close to the expiry of the agreement in March 2018,” IEA stated.
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