The International Energy Agency (IEA) has forecast in its latest monthly Oil Market Report that global growth in crude oil demand will slow down faster than previously expected. The agency now sees growth at 1.3 million bpd for 2016, which represents a downward revision by 100,000 bpd from its previous estimate. The revision was prompted by a faster-than-expected waning in demand growth over the third quarter of the year.
To add gloom, the IEA also said that demand growth will further slacken to 1.2 million bpd next year, citing “uncertain” macroeconomic conditions.
“ […] Supply will continue to outpace demand at least through the first half of next year,” the agency noted.
The international energy body says that OPEC set new records in production last month, pumping 33.47 million bpd, thanks to Middle Eastern producers. Kuwait and the UAE both reached the highest output levels in their history, while Saudi Arabia kept producing at record-high levels and Iran continued its fast ramp-up of production. On an annual basis, the August daily average of OPEC was 930,000 bpd above last year’s.
On the non-OPEC front, however, things looked a bit better in terms of output in August, with global crude oil supply inching down by 300,000 bpd thanks to “steep declines” in non-OPEC producers. Still, because of OPEC’s record-setting the average global daily supply remained excessive in relation to demand at 96.9 million bpd. Related: Manchester United Posts Record Revenue Without Petrodollars
Over the short term, the IEA sees no chance of the market returning to a balance, predicting the glut will persist at least until June 2017, with stockpiles of crude around the world still expanding.
At the same time, however, the agency noted that global production growth is slowing down, with the U.S. alone accounting for half of this slowdown as independent E&Ps have cut investments in new output in an immediately palpable way. The agency said non-OPEC supply is expected to return to growth in 2017.
On the whole, the picture remains bleak, according to the IEA, with rising supply and slowing demand growth defying the usual logic of oil markets and filling up storage space to unprecedented levels.
By Irina Slav for Oilprice.com
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This is the economics of divestment. Reserves lose value as they risk becoming stranded assets. So the new market logic is to increase production now to minimize R/P ratios and long-term losses. This logic will perpetuate oversupply until the most endowed producers have R/P ratios under 30 years.