Paris-based International Energy Agency says, ‘Our balances show essentially no oversupply during the second half of the year’
August 11, 2016. By Summer Said/WSJ
The world’s production of crude oil is falling behind demand, the International Energy Agency said Thursday.
From July through September, global production of crude oil will lag behind demand by almost 1 million barrels a day, said the IEA, a Paris-based agency that monitors energy trends for oil-consuming nations. And the oversupply of crude is clearing out even as OPEC producers pump at record or near record levels.
“Our balances show essentially no oversupply during the second half of the year,” the IEA’s monthly report said Thursday.
The prediction eliminates a central truth of the oil market for the past two years, when oil prices collapsed because of a flood of new crude supplies from places like the U.S. and Canada and ramped up production in traditional producers like Saudi Arabia and Iraq. Prices this year fell as low as $27 a barrel, a 13-year low and down from a peak of $114 a barrel in June 2014.
Two factors have caused the glut to disappear: Deep output cuts by producers outside the Organization of the Petroleum Exporting Countries cartel, and healthy global demand for crude oil, the IEA said. In North and South America alone, crude production is projected to fall by 700,000 barrels a day in the third quarter of 2016, compared with the first quarter, according to the IEA.
The easing of the oversupply has yet to bolster oil prices, which rose on Thursday in response to a separate but related piece of news: Saudi Arabia’s energy minister Khalid al-Falih said his country was ready to take action to support the oil market.
Mr. Falih said market forces like supply and demand were already rebalancing, but Saudi Arabia would discuss with other producers next month if more action was necessary.
Brent crude, the international benchmark, was trading up 2.34% at $45.08 in London on Thursday afternoon. U.S. oil prices also rose, increasing 1.82% to $42.47 on Thursday morning.
The IAE put Saudi output at 10.6 million barrels a day, beating its previous record last summer. Neighboring Kuwait and the United Arab Emirates also set new records in July. OPEC, the 14-nation cartel to which those countries belong, produced an eight-year high of 33.39 million barrels a day.
Analysts have said the Saudi output shows the kingdom is still locked in a fierce competition for its share of the global oil market, with competitors like Russia, Iraq and now the U.S., which exports oil and gas. Saudi Arabia and OPEC once favored keep prices high through production cuts but have decided in the past two years to instead keep the spigots on full blast and compete for oil buyers—a decision that fueled the glut.
On a gloomy note for oil producers, the IEA trimmed its forecast for the rise in global oil demand next year, predicting that global economic growth would fall short of previous projections.
“Some momentum will be lost in 2017,” the IEA said, though its forecast expansion of 1.2 million barrels a day “is still above trend.”
The IEA said an oil-price rally that began in June and reached $52 a barrel was halted by a huge buildup of oil kept in storage and a new glut of refined fuel products like gasoline that have cooled down demand for crude from refineries. For instance, in the Organization for Economic Cooperation and Development, a group of countries with advanced industrial economies, crude-oil inventories rose to a record 3.09 billion barrels in June, the agency said.
It will take months to use up those stocks, the IEA said, and the oil market has fallen into bear-market territory.
The IEA said refineries will process record volumes of crude this summer, drawing down those stocks and helping ease the remaining gluts in products and inventories—potentially raising prices.
Write to Summer Said at email@example.com