World oil market 'close to balance' despite OPEC cuts: IEA
Supply and demand in the oil market are close to matching up, the IEA said today, as landmark OPEC-led production cuts are mitigated by rising US supply and slipping worldwide demand growth.
The compliance rate with the agreement among OPEC members and some non-members, including Russia, "has been impressive", the International Energy Agency (IEA) said in its monthly oil market report, giving a lift to oil prices.
But oil at above USD 50 a barrel has, in turn, attracted higher-cost producers in the United States back to the market, and frantic American drilling will push non-OPEC supply to surprisingly high levels throughout the year, the IEA predicted.
"It can be argued confidently that the market is already very close to balance, and as more data becomes available this will become clearer," it said in the report.
"Although the oil market will likely tighten throughout the year, overall non-OPEC production, not just in the US, will soon be on the rise again," it said.
At the end of November, the Organization of Petroleum Exporting Countries (OPEC) agreed to cut output by 1.2 million barrels per day (mb/d) from January 1, initially for a period of six months.
Then in December, non-OPEC producers led by Russia agreed to cut their own output to 558,000 barrels per day.
The aim was to reduce a glut in global oil supply that had depressed prices.
Reports this week said that OPEC kingpin Saudi Arabia is pushing the cartel's producers to extend the agreement by another six months at their meeting in May. The IEA made no prediction about such a likelihood, but said that a consequence of OPEC "hypothetically" renewing the deal would be to support prices more and give further encouragement to US shale oil producers.
This means that non-OPEC oil production will soon be on the rise again.
"Even after taking into account production cut pledges from the eleven non-OPEC countries, unplanned outages in Canada as well as in the North Sea, we expect (non-OPEC) production will grow again on a year-on-year basis by May," the report said.
Oil inventories fell in March but probably showed a rise in the first quarter of this year overall because oil consumers stockpiled crude before the OPEC-led cuts took effect properly, the IEA said.
"The net result is that global stocks might have marginally increased in 1Q17," it said.
On the demand side, the IEA revised down its estimates for the worldwide thirst for oil, meaning there will be more oil available than previously thought.