IEA sees big 1Q stock build despite deeper Opec+ cuts

Global oil inventories could increase by 700,000 b/d in the first quarter next year, despite deeper output cuts agreed last week by the Opec+ alliance of producer countries, the IEA said today in its latest Oil Market Report (OMR).

"Faced with potential oversupply in early 2020, Opec+ countries agreed to deepen existing cuts to 2.1mn b/d in the first quarter of 2020. This implies a reduction in supply of 500,000 b/d from current levels," the Paris-based energy watchdog said. But "despite the additional curbs and a reduction in our forecast of 2020 non-Opec supply growth to 2.1mn b/d [from 2.3mn b/d], global oil inventories could build by 700,000 b/d in the first quarter of 2020," it said.

The revision to the IEA's 2020 non-Opec supply growth forecast stems from a weaker outlook for production in the US, Brazil and Ghana, as well as an additional 130,000 b/d of cuts that were pledged last week by the non-Opec signatories to the Opec+ deal.

The IEA does not think the cuts will be deep enough to stem a large stock build in the early part of next year. "Even if [Opec+] adhere strictly to the cut, there is still likely to be a strong build in inventories during the first half of next year," it said.

The IEA calculates that Opec's production will average about 29.3mn b/d in January "based on full compliance and steady output from Libya, Iran and Venezuela". But "that is still 700,000 b/d above the first-quarter call on Opec crude and 1mn b/d above the second-quarter call", it said.

The IEA has left its global oil demand growth projections unchanged for this year and next, at 1mn b/d and 1.2mn b/d respectively. It sees total consumption at 100.2mn b/d in 2019 and 101.5mn b/d in 2020.

According to preliminary data, commercial inventories in OECD countries fell by 23.5mn bl in November, after being 2.9mn bl below the latest five-year average in October.

By Konstantin Rozhnov