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IEA sees growing oil supply delaying inventories fall

14 Jun 2017 09:00 (+01:00 GMT)
IEA sees growing oil supply delaying inventories fall

London, 14 June (Argus) — Global oil inventories might not decrease "to the desired level" until close to the end of the current production cut deal between Opec and some non-Opec countries in March 2018, the IEA said today.

Global oil demand growth accelerates to 1.4mn b/d next year from 1.3mn b/d in 2017, with consumption reaching 99.3mn b/d. But non-Opec supply increases sharply by 1.5mn b/d in 2018 from 660,000 b/d in 2017, according to the IEA, driven "by strong US crude production and further gains from Brazil and Canada", with the UK, Kazakhstan, Ghana and Congo also increasing output.

"Our first outlook for 2018 makes sobering reading for those producers looking to restrain supply," the energy watchdog said in its monthly Oil Market Report (OMR).

The IEA expects US crude production to grow by 430,000 b/d this year, making the exit rate 920,000 b/d higher at the end of 2017 than at the end of 2016. It anticipates US crude output to grow by 780,000 b/d next year, "but such is the dynamism of this extraordinary, very diverse industry it is possible that growth will be faster".

Commercial oil inventories in developed economies stood 292mn bl above the five-year average in April, after gaining 620,000 b/d from March, more than the seasonal norm. The level is higher than when Opec and some non-Opec countries decided to cut output, the IEA said.

"Our provisional monthly data for May suggests that OECD stocks might, overall, be little changed, but recent US weekly data suggests that rising domestic production, high imports, low exports, and weaker gasoline demand, have combined to send stocks there higher," it said.

The IEA's May preliminary data suggest stocks are falling in Fujairah, Japan, Europe, Singapore and in vessels offshore, but rising in China.

"In last month's Report, the implied market deficit in the second quarter of 2017 was 700,000 b/d, but now this has narrowed to 500,000 b/d. The reasons for this are a reduction in demand growth, mainly because of weaker Chinese and European data, and an increase in global supply," the IEA said. "Based on our current numbers, assuming stable Opec production, market deficits should be significant in the second half of 2017, although adverse changes to demand and supply data can erode prospective stock draws."

The IEA puts call-on-Opec crude at 32.8mn b/d this year and 32.6mn b/d in 2018. Opec's own call on its crude stands at 32mn b/d this year.