IEA sees need for continued output cuts: Update

Updates throughout, including quotes from Barkindo and Birol.

Robust non-Opec production growth in the next few years will continue to pressure the producer group and suggests "some form of market management might stay in place" beyond 2019, the IEA said in its Oil 2019 report.

The IEA also projects that the call on Opec crude in 2024 will remain below 2017 levels.

"The call on Opec crude initially drops from 31.1mn b/d in 2018 to 30.1mn b/d in 2020. As non-Opec supply growth moderates, the call rises to 32mn b/d by 2024," the Paris-based IEA said in the report that looks at the oil market to 2024. That compares with 32.8mn b/d in 2017.

The current 1.2mn b/d supply cut deal between Opec and several non-Opec producers expires in June, but members have hinted it is likely to be extended through year-end.

"If you asked producers in the US shale basins whether they have benefited from (the Opec/non-Opec agreement), I am sure the answer would be a resounding ‘yes,'" Opec secretary-general Mohammed Barkindo said.

The IEA expects the US to be leading supply growth globally in the period to 2024, amid "the remarkable strength of its shale industry." The US will account for 70pc of the increase in global production capacity to 2024, adding 4mn b/d over the period. The IEA is basing its US growth projections on oil prices of around $60/bl during its forecast period.

Oil exports from the US are projected to overtake Russia's and approach Saudi Arabia's levels. The strong production growth in the US "is sending shockwaves globally," IEA executive director Fatih Birol said today at the IHS-CERAWeek conference in Houston. "If you are an importing country, it is very good news — you have more options now… For the exporting countries, in the Middle East and others, this is an important heads up, for the time of diversification."

But the US also is leading demand growth, at least in the near term. "We found out that last year the US was not only number one in terms of supply growth, but also number one in demand growth," adding 500,000 b/d, Birol said. "This is the first time in 20 years that the US is the driver of consumption growth." The trend reflects growing demand from the US petrochemical industry as much as the slowing demand growth in China.

The IEA sees the US becoming a net oil exporter in 2021, with the country's gross exports reaching 9mn b/d "towards the end" of the report's forecast period.

"Important contributions will also come from other non-Opec countries, including Brazil, Canada, a resurgent Norway and newcomer Guyana, which together add another 2.6mn b/d in the next five years," the report said.

"The second-largest increase in crude exports comes from Brazil, which ships an extra 800,000 b/d of oil by 2024," the agency said.

The IEA expects non-Opec production to rise to 68.7mn b/d in 2024, up by 6.1mn b/d from 2018.

It also sees Opec's effective production capacity falling by 380,000 b/d during the period, as gains in Iraq and Saudi Arabia are offset by "steep losses from Iran and Venezuela, which are subject to sanctions and political or economic turmoil."

"With the US and other non-Opec countries seeing continued growth throughout the forecast period, Saudi Arabia will almost certainly have to play its traditional role as swing producer when the market is unbalanced," the report said.

The IEA projects Venezuela's oil production capacity to fall to 750,000 b/d this year and stay at that level through 2024. "This is not a permanent" decline, Birol said. "If there is change in Venezuela the right way, if the investment regime changes, if the diaspora of oil industry professionals returns," production can rebound, he said.

The IEA sees Iran's exports and production capacity capped through 2024 as a result of US sanctions, but that is based on an assumption of no changes in US policies after 2021.

The IEA expects global oil demand growth to slow only modestly from last year's 1.3mn b/d to average 1.2mn b/d in 2018-24, "meaning there is no peak demand on the horizon," Birol said. "While demand from China is easing, jet fuel and petrochemicals are driving growth."

China and India will account for 44pc of the 7.1mn b/d growth in global demand anticipated over the next five years, the IEA said. Global oil demand will reach 106.4mn b/d in 2024.

"By 2024, India's oil demand growth will match China," the report said.