A global oil glut that has hurt producers but means cheaper pump prices for consumers looks set to go on at least six months longer than previously thought, the International Energy Agency said today.
The IEA said demand growth was slowing while supply was rising, meaning the glut was now due to linger “at least through the first half of next year”.
The Paris-based organisation had earlier seen the oil oversupply disappearing in the latter part of 2016.
The timing of the world oil market’s return to balance is “the big question”, the IEA said in its monthly report, adding that current prices — above USD 45 — would suggest supply falling and strong demand growth.
“However, the opposite now seems to be happening,” it said. “Demand growth is slowing and supply is rising.”.
The trend may fuel speculation of a possible production freeze — aimed at supporting prices — being agreed between OPEC and non-OPEC member Russia at a meeting in Algeria later this month.
China and India, which had been key drivers recently of demand growth, are “wobbling”, it said, while a slowdown in the US and economic concerns in developing countries have also contributed to the surprise development.
Global oil demand is now expected to grow by 1.3 million barrels per day (mb/d) in 2016, to 96.1 mb/d, from its original forecast of 1.4 mb/d growth.
The IEA also trimmed its demand growth forecast for 2017 by 200,000 barrels per day, to 97.3 mb/d.
On the supply side, output fell in August, led by producers outside of the Organization of the Petroleum Exporting Countries (OPEC) cartel.
After gains in June and July, global oil supplies dropped by 300,000 barrels per day last month, to 96.9 mb/d. Non-OPEC supply is expected to rebound next year, after declining this year.
But, said the IEA, OPEC production edged up last month to a near-record supply level, which “just about offset steep non-OPEC declines”.
Producers Saudi Arabia, Kuwait, the United Arab Emirates and Iraq are all at, or near all-time highs, the report said.
“Saudi Arabia’s vigorous production has allowed it to overtake the US and become the world’s largest oil producer,” it added. The US had held the spot since April 2014.
In late 2014, OPEC shifted its strategy to defend market share, rather than price, a move which has hit high-cost non-OPEC producers especially hard.
Among them, the US, formerly the engine of non-OPEC supply growth, has particularly suffered.