Oil from OPEC's rivals to exceed demand growth in 2018

Date:2017-06-15 14:32:18

LONDON (Bloomberg) -- New oil supplies from OPEC’s rivals will be more than enough to meet growth in demand next year, the International Energy Agency said in its first forecast for 2018, an indication the cartel may need to extend production cuts further.

 

The U.S., Brazil, Canada and other producers outside OPEC will increase output next year by the most in four years, the IEA said. So while the cutbacks should reduce the world’s bloated oil inventories to average levels by the time they’re scheduled to end next spring, demand for OPEC crude won’t be high enough for the group to reverse the curbs without seeing stockpiles rise again.

 

“Our first outlook for 2018 makes sobering reading for those producers looking to restrain supply,” said the Paris-based IEA, which advises most of the world’s major economies on energy policy.

 

Oil prices have slipped 14% in New York this year as hopes that supply curbs by OPEC and partners such as Russia would end a three-year surplus have given way to concern that the cuts aren’t deep enough and that U.S. shale drillers will fill any shortfall.

 

Global oil demand growth will accelerate next year to 1.4 MMbpd, or 1.5%, led by economic expansion in China and India. Demand will surpass 100 MMbpd for the first time in the fourth quarter of 2018.

 

Still, supplies outside OPEC will grow even faster, by almost 1.5 MMbpd, with about half the expansion coming from U.S. crude production. The nation’s shale-oil explorers, who first triggered the glut OPEC is trying to contain, have emerged more efficient from the oil market’s three-year slump. The last time non-OPEC supply growth exceeded the increase in demand was 2014, when oil prices slumped 46%.

 

As a result, demand for OPEC’s crude next year will be about 200,000 bpd lower than this year, at 32.6 MMbpd. That loss of market share was foretold by former Saudi Arabian Oil Minister Ali al-Naimi, who insisted, until his departure last year, the group should keep pumping to squeeze out its competitors.

 

Progress Slow

 

While OPEC, which pumped 32.1 MMbpd in May, could reverse some of the cuts it’s made, it can’t fully restore output without tipping world markets back into oversupply. Completely reversing the cuts next April would result in a surplus of about 500,000 bpd, the data indicates.

 

OPEC and 11 allies agreed on May 25 to prolong their deal to April 1, after judging that curbs made in the first half of this year wouldn’t be enough to reduce oil inventories in developed nations to their five-year average.

 

While those supply reductions should eventually succeed, progress is much slower than expected, the IEA said.

 

Oil inventories in developed nations remain higher than before OPEC started cutting production. After increasing in April by more than normal for the time of year, stockpiles are 292 MMbbl above their five-year average, the agency said. Inventories have increased by about 360,000 bpd so far this year, it said.

 

Producers inflated oil stockpiles at the end of last year by ramping up exports just before their agreement started, and demand growth has disappointed so far this year. Even with the extension, “stocks might not fall to the desired level until close to the expiry of the agreement.”

 

That’s a longer time-frame than predicted by Saudi Arabian Energy Minister Khalid Al-Falih, who expects stockpiles will subside to normal levels by the end of the year.

 

While Saudi Arabia and Russia, the world’s two biggest producers, have pledged to do “whatever it takes” to restore equilibrium, the “current form of ‘whatever’ is not having as quick an impact as expected,” the IEA said.

TypeInfo: Industry News

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