The oil market surplus may run into a third year in 2017 without an output cut from OPEC, while escalating production from exporters around the globe could lead to relentless supply growth, the International Energy Agency has announced.
In its latest monthly oil market report, the IEA showed that global supply rose by 800,000 barrels per day in October to 97.8 million bpd, led by record OPEC and rising production from non-OPEC members such as Russia and Canada.
The Paris-based IEA kept its demand growth forecast for 2016 at 1.2 million bpd and expects consumption to increase at the same pace next year, having gradually slowed from a five-year peak of 1.8 million bpd in 2015.
The Organisation of the Petroleum Exporting Countries meets at the end of this month to discuss a proposed cut in production to a range of 32.5 to 33 million bpd, but discord among members over exemptions and production levels has raised doubt over OPEC’s ability to deliver a meaningful reduction.
The IEA report stated: “Whatever the outcome, the OPEC meeting will have a major impact on the eventual – and oft-postponed – rebalancing of the oil market.
“If no agreement is reached – and some individual members continue to expand their production- then the market will remain in surplus throughout the year, with little prospect of oil prices rising significantly higher.
“Indeed, if the supply surplus persists in 2017, there must be some risk of prices falling back.”
Crude oil prices have risen to around $46 a barrel from near 13-year lows at around $27 in January 2016, but are still 60% below where they were in June 2014.
The IEA said it expects non-OPEC production to grow at a rate of 500,000 bpd next year, compared with a 900,000-bpd decline this year, meaning 2017 could see inventories building again if there is no cut from OPEC.
Supply outpaced demand by as much as 2 million bpd earlier this year and this excess appeared to have all but vanished during the third quarter of 2016.
However, OPEC pumping oil at a record rate of 33.83 million bpd last month, along with increases in production from non-OPEC rivals such as Russia, Canada – and even the North Sea – threatens to reverse this rebalancing.