Opec to see supply overhang in full compliance: IEA

Crude production at Opec countries could average 900,000 b/d above second-quarter demand, the IEA said today in its latest Oil Market Report (OMR).

Opec countries would produce 29.3mn b/d in January if they fully comply with a December agreement to deepen cuts, and if output is steady from the three member countries that do not have a ceiling — Iran, Libya and Venezuela.

"That is still 700,000 b/d above the first-quarter call on Opec crude and 900,000 b/d above the second-quarter 2020 call," the Paris-based energy watchdog said.

It expects the call on Opec crude to reach 28.6mn b/d in the first three months of the year, and 28.4mn b/d in the second quarter. This could rise to around 29.3mn b/d in the second half of the year.

And the non-Opec producers that make up part of the agreement need to cut output by around 300,000 b/d this month to fully comply, the OMR said.

Production growth at non-Opec countries will grow by 2.1mn b/d this year to 67mn b/d, with stronger growth in the first half of the year. The 2020 rate of growth is faster than in 2019, and is above the forecast made in the previous OMR. This "may encourage those taking part in supply cuts to toe the line," the IEA said.

Last year, non-Opec's 2mn b/d production increase was offset by declines from Iran and Venezuela, as well as Opec cuts shouldered by Saudi Arabia.

The US will remain the largest contributor to the rise in non-Opec supply, although the rate of growth is slowing, the IEA said. Its output will rise by 1.1mn b/d, of which crude and condensates account for 760,000 b/d. Further increases will come from Brazil, Norway, Canada, Australia and Guyana, which started up production in December.

The IEA has kept its global oil demand growth projections little changed for 2020 at 1.2mn b/d. It sees total consumption at 101.5mn b/d in 2020.

Escalating tension in the Middle East has had limited impact on production, as Iraq becomes the battleground for US-Iran conflict. But heightened security concerns could make it more difficult for Iraq to build production capacity in the medium term, as investors hold back.

"In turn, this could make it more difficult to ensure there is sufficient spare production capacity to meet rising global demand in the second half of this decade," the IEA said.

The IEA forecasts global refinery throughput to increase by 1.1.mn b/d in 2020, supported by a recovery in refined product demand, which it estimates will grow by 0.8mn b/d. It said OECD industry stocks fell by 2.9mn bl in November to 2.91bn bl, just 8.9mn bl above the five-year average. It revised its October stocks data higher by 11mn bl.

Preliminary data for December show stock builds in the US and Europe and a draw down in Japan.

By Rowena Edwards and Konstantin Rozhnov