The Economy

IEA Walks Back Forecast of End to Oil Glut

After predicting last month the market would return to balance, the agency now says that forecast may have been premature.
Matthew HellerSeptember 13, 2016

The International Energy Agency on Tuesday indicated its predictions that the world’s oil glut would disappear may have been premature, citing “wobbling” Asian oil demand and falling oil consumption in Europe.

The IEA’s Oil Market Report for September marked a shift from last month, when it predicted the oil market could soon return to balance amid deep output cuts by non-OPEC producers and healthy global demand for crude oil.

On Tuesday, the Paris-based agency downgraded its global oil-demand prediction by about 100,000 barrels a day for this year — although consumption is growing by 1.3 million barrels a day. It also reduced the 2017 forecast by about 200,000 barrels a day, with consumption increasing more slowly at 1.2 million barrels a day.

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“When will the world oil market return to balance? That is the big question today,” the IEA said.

“With the price of oil at current levels,” it continued, “one would expect supply to contract and demand to grow strongly. However, the opposite now seems to be happening. Demand growth is slowing and supply is rising. Consequently, stocks of oil in OECD countries are swelling to levels never seen before.”

The IEA noted that demand growth in China and India is “wobbling” and the stimulus from cheaper fuel is fading. In addition, “Economic worries in developing countries haven’t helped either. Unexpected gains in Europe have vanished, while momentum in the U.S. has slowed dramatically.”

World oil supplies fell by 0.3 million barrels a day in August, but near-record OPEC production just about offset steep non-OPEC declines. Kuwait and the UAE hit their highest output ever, with overall OPEC supply 930,000 barrels a day above a year ago.

The U.S. accounted for more than half the decline in non-OPEC supply, reflecting investment cuts by independent producers.

According to The Wall Street Journal, the latest IEA data will “intensify the debate among oil producers later this month in Algiers about whether they should put new limits on their production. Members of OPEC … are set to discuss ‘freezing’ their production levels with big oil producers outside the group such as Russia.”