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IEA Says Non-OPEC Expansion Continues While Oil Market Re-Balancing Is Underway


08/11/2017


IEA Says Non-OPEC Expansion Continues While Oil Market Re-Balancing Is Underway
The latest report from the International Energy Agency says that more time is needed before the shifting fundamentals in the oil industry are felt by markets even though it states that the oil market is re-balancing as demand continues to grow.
 
By revising up its July forecast from 1.4 million, growth in global oil demand has been predicted by the agency and it expects that demand to reach 1.5 million barrels per day this year. The agency further expects this demand to grow by an additional 1.4 million in 2018 and until that time this momentum is then expected to continue.
 
OPEC oil producers have been at pains to curtail excess oil supply under an agreement signed in January and this should go some way in absorbing the excess supply in the global crude market. However, the IEA suggested that the re-balancing will not play out for some time because of continued output expansion from U.S. drillers as well as by Libya and Nigeria, the two OPEC members exempt from the efforts.
 
"Although stocks are beginning to fall, they're falling from a very great height," Neil Atkinson, head of the Oil Industry and Markets Division at the IEA, said in a television interview. It would still take until the early part of 2018 to return to the five-year average even if OECD stocks continued to fall at rates seen in the second quarter of the year, the report noted.
 
This means that more time is needed for the effects to be felt in oil prices.
 
"It's very difficult to see, based on the current fundamentals, oil prices rising significantly in the next few months," he noted.
 
Oil prices fell on the release of the report Friday morning. Brent was trading at $51.46 per barrel while WTI was at $48.14.
 
Non-OPEC countries, for instance, U.S. shale producers, could likely be incentivized to pump up supplies by any uptick in oil prices.
 
"Potential price rises are very much capped by the likelihood of more supply coming on stream from the U.S. if prices do begin to rise," Atkinson noted.
 
Led by increased output by Libya and Nigeria, OPEC announced a continued rise in its collective output on Thursday.
 
And noting the highest level for OPEC since the production agreement came into force in January, its output jumped by 173,000 barrels a day in July to almost 32.9 million barrels.
 
The fourth consecutive month of output expansion was marked by this increase. According to the IEA, 87 per cent is the present rate of compliance with the deal by the member oil producing countries of OPEC.
 
Atkinson noted that further time for the impact to be felt is allowed as the OPEC deal is deal is due to run until March 2018. He however said that further reassurance from members that they will "maintain discipline" is what investors will be looking for in the deal.
 
(Source:www.cnbc.com) 


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