The International Energy Agency reported that the global oil surplus will extend into 2017, lasting much longer than previously expected as the demand growth of oil weakens against continuous high levels of supply.
The stockpile for world oil will continue to accrue until 2017 in an oversupply problem that has been running for four consecutive years, according to the IEA. Demand dampened in China and India affecting consumption for oil growth dipping to a two-year low as the third quarter rolled in as the Organization of Petroleum Exporting Countries Gulf members continue to flood the market with record outputs. The current report is the reverse of the prediction last year that equilibrium will return to the market.
“Supply will continue to outpace demand at least through the first half of next year,” the Paris-based adviser said in its monthly report. “As for the market’s return to balance — it looks like we may have to wait a while longer.”
After the report, oil experienced losses with West Texas Intermediate crude dropping by as much as $1.25 to $45.04 per barrel down by 2.7 percent.
In response to the global oil glut, OPEC set a strategy to return the equilibrium by pressuring its rivals with lower prices through a surplus in supply and causing prices to still be unable to reach $50 per barrel. The organization’s members are planning on an informal meeting with Russia during the energy forum later this month in Algiers which created speculation that the producers would be agreeing on a cap on output to push prices higher.
“This a marked shift in outlook by the IEA, which not too long ago was contemplating a re-balancing of the market in 2016,” said head of commodity markets strategy at BNP Paribas SA Harry Tchilinguirian in London. OPEC’s “long game got a little longer, implying the need for oil prices to remain lower for longer to spur the necessary adjustments in supply.”
Projections of the IEA for global oil demand went down by 200,000 barrels a day down to 97.3 million per day. Estimates for this year also dropped to 1.3 million down by 100,000 barrels per day noting the “dramatic deceleration in China and India” as developed countries also have “vanishing growth.”
“The stimulus from cheaper fuel is fading. Refiners are clearly losing their appetite for more crude oil,” the IEA said.
After a sharp decrease in supply outside of OPEC, demand is expected to rebound by next year, higher by 380,000 barrels per day. The reported results are marginally higher than expectations the month before after strong performances from Norway and Russia. The recovery of U.S. shale oil production is thought will recover in the second half of 2017.
According to Olivier Jakob, managing director of consultants Petromatrix GmbH, “Non-OPEC supply has been able to adjust better than expected to the lower oil prices.”
The increase in OPEC output along with faltering demand is pushing inventories up to a record of 3.1 billion barrels in July for developed nations.
“Demand growth is slowing and supply is rising,” the agency said. “Consequently, stocks of oil in OECD countries are swelling to levels never seen before.”