Reaching oil-market rebalancing could go beyond the first quarter of 2018 despite a drawdown in global crude inventories, unless producers are convincing in their joint production cut efforts, International Energy Agency said in its August report.
Second quarter global stocks fell by 0.5 million barrels per day (bpd) and preliminary data for July, particularly in the United States shows stocks fell by 790,000 bpd, IEA said in its monthly report.
OECD stocks at the end of the second quarter were at 3.02 billion barrels, still more than 219 million barrels above the five-year average although they have now fallen below 2016 levels.
OPEC agreed to cut output by about 1.2 million bpd until the end of March 2018 to bring global oil inventories to their five-year average.
IEA said that even If OECD stocks fell by 0.5 million bpd until the end of first quarter, they would still be about 60 million barrels above the five-year average.
“There would be more confidence that re-balancing is here to stay if some producers party to the output agreements were not, just as they are gaining the upper hand, showing signs of weakening their resolve,” IEA said.
Compliance rate with OPEC’s output cut fell again in July to new low of 75 per cent, from June’s revised figure of 77 per cent, IEA said.
For those non-OPEC countries acting in support, their compliance rate in July was 67 per cent. Together, the twenty-two countries are producing about 470,000 bpd in excess of their commitment.
OPEC members raised output in July, adding 173,000 barrels of oil per day. The production increase was led by Libya and Nigeria – countries exempt from a production cut deal as they recover production after prolonged conflict which targeted oil production.
There is a ray of light for producers as in global demand rises.
IEA said global oil demand is expected to reach 1.5 million barrels per day this year, revising up its July forecast from 1.4 million. This momentum is then expected to continue into 2018, when demand is seen growing by a further 1.4 million.
However, demand in some developing countries is overstated. “We have reduced our estimate of non-OECD demand for 2015 by 0.2 million bpd and for 2016 by 0.4 million bpd. The impact of carrying this lower demand base into 2017 against unchanged supply numbers is that stock draws later in the year are likely to be lower than first thought,” it said.