Oil glut may clear quicker than expected, IEA says
Fears of a protracted oil glut have eased on the back of growing global demand and a series of interruptions to supply, according to new analysis from the International Energy Agency.
- Demand growth 30 per cent higher than expected
- Cuts to supply could emerge from Africa, America
- Oil stocks expected to reach 1.3 million barrels a day in 2017
In its monthly Oil Market Report the IEA said since its gloomy forecasts at the start of the year — when the oil price plunged back to 2003 lows — demand growth has been 30 per cent higher than expected at 1.6 million barrels a day (mb/d) compared to 1.2 mb/d it had estimated for the year.
More recently unexpected loss of supply due to disruptions in major fields cut global oil production by nearly 0.8 mb/d in May, with falls in both OPEC and non-OPEC countries.
The IEA said May represented first significant decline in global production since the start of 2013.
The combination of ongoing militant action in Nigeria and wild fires interrupting oil sands production in Canada drove up oil prices to a 2016 high above $US51 a barrel in May, the third successive month of average prices rises for the main global futures markets.
The Paris-based adviser to OECD nations on energy issues said its original forecast of a surplus of 1.5 mb/d had been revised down by almost a half to 0.8 mb/d for the first half of 2016, although that still represents a significant build-up of oil stocks.
However the IEA expects the second half of the year to be characterised by a series of unexpected of supply cuts in key supplier nations.
“Canada’s wildfires at their peak removed up to 1.5 mb/d of production capacity; in Nigeria, militant action has forced production down to 30-year lows; and Libya remains a long way from significantly increasing its production despite occasional signs of optimism,” the IEA said.
Troubles in Africa, America could strain supply
While Canada’s production will return to normal, the troubles in Nigeria and Libya look to be long-standing.
On top of that, the crumbling political situation in Venezuela and production declines — particularly in US shale oil fields — forced by low prices could see supply strangled further this year.
The IEA forecast non-OPEC production could fall by as much as 0.9 mb/d.
OPEC production fell marginally in May with higher output from Gulf nations offsetting big losses from Nigeria.
However that decline may be only temporary as a meeting of OPEC oil ministers earlier this month rejected a proposal to re-instate a production ceiling leaving members free to pump at will, an offer taken up with glee by the now sanctions-free Iran.
The IEA warned while the oil market now looks to be balancing there are large volumes of shut-in production, mainly in Nigeria and Libya, that could return to the market, and the strong start for oil demand growth seen this year might not be maintained.
“In any event, following three consecutive years of stock build at an average rate close to 1 mb/d there is an enormous inventory overhang to clear,” the IEA noted.
This huge build-up in inventory is likely to keep significant downward pressure on oil prices for some time to come.
The IEA also made its first forecast for the oil market into 2017 pencilling in demand growing at the same rate as in 2016 — 1.3 mb/d, and non-OPEC supply growing by a modest 0.2 mb/d.
“Again, on the planning assumption that OPEC oil production grows modestly in 2017 we expect to see global oil stocks build slightly in the first half of 2017 before falling slightly more in the second half,” the IEA forecast.
That would lead to a very modest clearing of the glut at the rate of around 100,000 barrels a day.