If the Organisation of Petroleum Exporting Countries (OPEC) maintains its output cuts, demand should overtake supply in the first half of this year, signalling imminent deficit for all members including Nigeria, the International Energy Agency (IEA) has said. Global oil inventories rose for the first time last January as the market grappled with a swell in production last year. The IEA’s monthly report struck a more bullish note than that issued by the OPEC last Tuesday.
“At 32.3 million bpd, the call on OPEC crude during the first quarter of 2017 is higher than average output of 31.9 million bpd so far this year, which could lead to a draw in global inventories,” the IEA said OPEC also flagged rising inventory levels, but raised its estimates for production outside the group and did not see a rebalancing between supply and demand until the second half of this year.
The IEA said crude stocks in the world’s richest nations rose in January for the first time since July by 48 million barrels to 3.03 billion barrels, more than 300 million barrels above the five-year average.
“The actual build in OECD stocks in January reminds us that it may be some time before global stocks start to fall,” the agency said. The increase is the product of “relentless” supply growth in the latter stages of last year, particularly from OPEC countries that pumped at record levels, and from the U.S. shale oil basin, where drilling activity began picking up 10 months ago.
Compliance by OPEC with its agreed output cut of 1.2 million barrels per day in the first half of this year was 91 percent in February and, if the group maintains its supply limit to June, the market could show an implied deficit of 500,000 bpd, the IEA said.
“If current production levels were maintained to June when the output deal expires, there is an implied market deficit of 500,000 bpd for 1H17, assuming, of course, nothing changes elsewhere in supply and demand,” the IEA said.
“For those looking for a rebalancing of the oil market, the message is that they should be patient, and hold their nerve.” In its October report, before the November agreement between OPEC and some of its competitors including Russia, Mexico and Kazakhstan to limit output, the IEA warned the market risked running into a third successive year of excess supply without any action from the producer group.
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