The oil market will not find a sustained balance until well into next year, even as strong demand growth and production disruptions are helping to shrink excess supplies, the world’s leading energy body has said in its first forecast for 2017.
, the International Energy Agency said although it expected supply and demand to even out in the latter half of 2016, it forecast a small surplus early next year.
Opec supplies are forecast to increase “modestly”, while production outside of the group, including in the US, resumes its growth trajectory. This will make way for a slight build in global stocks in the first half of 2017, before it begins to fall again.
Short term, however, “less oil has been stockpiled than we originally expected,” said the agency. The oil overhang, that it initially estimated would stand at 1.5m barrels a day in the first six months of this year, has dropped to 800,000 b/d.
This has stoked a , taking the international benchmark Brent crude to above $50 a barrel. On Tuesday, Brent declined 77 cents to $49.58 a barrel against a broader backdrop of risk aversion.
Oil demand growth has been “significantly” stronger than forecast while global supply disruptions from outages in to have taken hold. A steady decline in US oil production and a weaker US dollar have also bolstered prices.
Demand growth in the first quarter has been better than expected, leading the IEA to upwardly revise its estimates for the first three months of the year by 400,000 b/d and its 2016 figure to 1.3 mb/d.
Gasoline strength supported US demand. “Having paused for breath somewhat towards the end of 2015, the US has rediscovered its earlier vigour,” the IEA said. Other increases could be seen in Japan, Turkey and Poland.
The IEA expects the same level of demand growth for 2017. Total demand will increase from 96.1m b/d this year to 97.4m b/d next year.
Unexpected supply shutdowns, from Canada to Nigeria and Libya, have cut production by nearly 800,000 b/d in May alone. Output across the world stood 590,000 b/d below last year’s levels — the first significant drop since early 2013, at 95.4 mb/d.
“Canada’s shut-in production will fully return in the near future, but the troubles in Nigeria and Libya look to be longstanding,” the IEA said. “This current list of shut-ins might soon be augmented by Venezuela.”
Opec crude output fell 110,000 b/d in May to 32.61m b/d, even as Iranian production has climbed after the lifting of sanctions. As growth in demand exceeds non-Opec supply, more crude will be required from Opec. Demand for the group’s crude in 2016 is going to be 200,000 b/d higher than initially anticipated at 32.5m b/d.
But the IEA said supply growth from outside of the cartel is likely to return in 2017 by about 200,000 b/d, after a 900,000 b/d decline in 2016.
“Following the recovery in oil price . . . and a tighter market balance next year, we expect a slight uptick in completion activity through 2016 and into 2017,” the IEA said.
US shale oil production is expected to slip by 500,000 b/d this year and a further 190,000 b/d in 2017, despite an expected return to growth by mid-2017, the IEA said.
The IEA warned if supply shut-ins alleviate and demand growth is not maintained it may be more difficult to clear the still “enormous” inventory overhang.
“This is likely to dampen prospects of a significant increase in oil prices,” the IEA said.