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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Legit OPEC Cuts To End Global Oil Glut In H1 2017

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As long as OPEC and non-OPEC producers deliver the production cuts they agreed to over the weekend, the oil market is likely to move into deficit in the first half next year by an estimated 600,000 bpd, the International Energy Agency (IEA) said in its Oil Market Report published on Tuesday.

IEA’s supply and demand estimates before the OPEC-non-OPEC agreement had suggested that the oil market would rebalance by the end of next year, the Paris-based agency said in the first major assessment of global stockpiles after producers agreed to cut output. However, should OPEC, Russia and other oil producers manage to stick to their promised cuts, the market would move into deficit in the first half, the IEA said, adding that it’s not forecast by the agency, just an assumption based on the numbers in OPEC’s agreement from November 30 and the non-OPEC nations’ pledges.

Worth noting is that the agency said that OPEC’s promised cuts of 1.2 million bpd almost match “its deliberate production increase” of 1.3 million bpd in the twelve months leading up to October, the month on which the cuts were expected to be based. The non-OPEC producers, on the other hand, have seen their total oil production drop in the same period by around 900,000 bpd, IEA said.

The IEA’s latest global oil demand growth estimates show growth of 1.4 million bpd this year, or 120,000 bpd above the previous forecast. Global demand growth next year is predicted at 1.3 million bpd. Related: The Venezuelan Crisis Continues To Spiral Out Of Control

As far as oil prices and the OPEC deal are concerned, “the price curve reflects this with a sharp increase in short-term prices but shows relatively little movement further out,” the agency noted.

The IEA’s report also cautioned high-cost producers against taking for granted that they “will receive a free ride to higher production”.

“These high-cost producers, who assume that the cuts at the very least guarantee a floor under prices, might think twice before taking the risk of sanctioning new investments,” the IEA says.

Whatever the assumptions are, the next few weeks would be crucial to see if cuts are actually taking place, and if the recent increase in crude oil prices will last, the agency noted.

“Success means the reinforcement of prices and revenue stability for producers after two difficult years; failure risks starting a fourth year of stock builds and a possible return to lower prices,” IEA’s report concludes.

By Tsvetana Paraskova for Oilprice.com

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