LONDON: The global oil market will likely show a surplus in the first half of 2018, as rising US supply offsets OPEC’s discipline in maintaining its production cuts for the whole of next year, the International Energy Agency (IEA) said on Thursday.
“Total supply growth could exceed demand growth: Indeed, in the first half the surplus could be 200,000 barrels per day (bpd) before reverting to a deficit of about 200,000 bpd in the second half, leaving 2018 as a whole showing a closely balanced market,” the Paris-based IEA said in its monthly oil market report.
“A lot could change in the next few months but it looks as if the producers’ hopes for a happy New Year with de-stocking continuing into 2018 at the same 500,000-bpd pace we have seen in 2017 may not be fulfilled.”
The IEA left its forecast for global oil demand growth unchanged for 2017 at 1.5 million bpd, marking a rise of 1.6 percent, and for 2018, at 1.3 million bpd, equal to an increase of 1.3 percent.
Production from outside the Organization of the Petroleum Exporting Countries is expected to have risen by 600,000 bpd this year, before increasing by 1.6 million bpd next year.
The IEA last month predicted non-OPEC supply would increase by 1.3 million bpd in 2018, but the pace of growth in US shale output prompted the agency to raise its forecast for total US crude output growth to 870,000 bpd for next year, up from a forecast for an increase of 790,000 bpd in its November report.
OPEC and 10 of its partners, including Russia, agreed in November to extend a 1.8-million bpd supply cut throughout the whole of 2018 to force a drawdown in global inventories and support crude prices.
The IEA said OECD commercial stocks fell by 40.3 million barrels in October to 2.94 billion barrels, the lowest since July 2015 and 111 million barrels above the five-year average, which is OPEC’s target for inventories.
The IEA estimates that the average call on OPEC crude in 2018 will be 32.5 million bpd, around 100,000 bpd higher than the average so far this year of around 32.4 million bpd, implying an ongoing drawdown in inventories.
But the pace of increase in global supplies, led by the US, where total oil production is expected to grow by 1.1 million bpd next year, means inventories will rise early next year.
“Going into the first quarter of 2018, our balances imply that global oil stocks will increase by 300,000 bpd, assuming stable OPEC crude production of 32.5 million bpd,” the IEA said.
“The global picture is more mixed in November as, even if oil stocks drew in the US and Singapore, they likely rose in other locations, including China, Europe, Japan, and Fujairah. Crude oil held in floating storage declined during October-November but not by as much as in (the third quarter),” the agency said.