In its June Oil Market Report, the International Energy Agency stated that less oil has been stockpiled than originally expected during this year’s first half. The surplus of supply over demand in the first half is currently about 800,000 b/d compared with the initial expectation of 1.5 million b/d in January. The sharp reduction is driven by stronger oil demand growth and unexpected supply cuts, according to IEA.
Firm data for this year’s first quarter shows year-over-year growth of 1.6 million b/d, up from an initial expectation of 1.2 million b/d. IEA has slightly increased the demand growth number for 2016 to 1.3 million b/d from a previous 1.2 million b/d. Gasoline demand in the US is very strong and on course to rise 255,000 b/d, or 2.8%, this year.
On the supply side, Canada’s wildfires at their peak removed as much as 1.5 million b/d of production capacity. In Nigeria, militant action has forecast production down to 30-year lows. Libya remains a long way from significantly increasing its production. Venezuela’s oil might also soon be affected by the country’s deteriorating situation. In May, outages in Organization of Petroleum Exporting Countries and non-OPEC countries cut global oil supply by nearly 800,000 b/d.
In addition to the unplanned shut-ins, IEA’s forecast of production falls due to lower oil prices remains intact. The non-OPEC group of countries will see production fall by 900,000 b/d this year.
Assuming only modest growth in production from OPEC member countries and no further surprises, in this year’s second half, IEA expect the oil market to be balanced.
However, IEA also warned that there are large volumes of shut-in production, mainly in Nigeria and Libya, that could return to the market, and that strong start of oil demand growth seen this year might not be maintained.
“In any event, following three consecutive years of stock build at an average rate close to 1 million b/d there is an enormous inventory overhang to clear. This is likely to dampen prospects of a significant increase in oil prices,” IEA said.
The report also includes for the first time IEA’s 2017 outlook. IEA expects global oil demand to increase at the same rate as in 2016—1.3 million b/d—and global demand will reach 97.4 million b/d. Non-OPEC supply will rise by a modest 200,000 b/d.
Commercial inventories within the Organization of Economic Cooperation and Development increase from March levels by 14.4 million b/d to stand at 3,065 million bbl by end-April, an impressive 222 million bbl above a year earlier.