Higher-than-forecast demand should bolster oil prices throughout 2016, despite high stocks continuing to exert downward pressure on prices, the IEA said yesterday.
Global demand for oil will grow by 1.4mn barrels per day (bpd) this year to 96.1mn bpd, the International Energy Agency (IEA) said in its monthly oil market report, revising up last month’s forecasts of a 1.3mn bpd rise.
While predicting a “return to balance” in overall “big picture” market direction, the IEA said “the existence of very high oil stocks is a threat to the recent stability of oil prices.”
Last month the agency had warned significant price rises were unlikely given that “there is an enormous inventory overhang to clear.”
The IEA noted crude prices had edged off an early June peak above $52 per barrel to trade in a $45-$50 range — a stark contrast to the nearly daily price falls earlier this year.
“Our underlying message that the market is heading to balance remains on track, but the modest fall back in oil prices in recent days to closer to $45/bbl is a reminder that the road ahead is far from smooth,” the IEA concluded.
“The adjustments to our data this month suggest that little has changed with the market showing an extraordinary transformation from a major surplus in 1Q16 to near-balance in 2Q16,” the report added.
Oil prices, which slumped below the $30 mark in January, rebounded earlier this week from two-month lows as an Opec forecast pointed to an easing of global oversupply.
US benchmark West Texas Intermediate for August delivery on Tuesday jumped $2.04 to $46.80 a barrel on the New York Mercantile Exchange, while in London, Brent North Sea crude for delivery in September added $2.22 to $48.47.
In its own July report, Opec had forecast the global supply glut would ease this year and next, as producers outside the group, particularly the United States, cut production.
The 14-member organisation, which provides about one-third of the world’s crude, has squeezed competitors in recent months by keeping the taps open, saying June production rose by 264,000 bpd to an average 32.9mn barrels bpd.
Opec predicted global demand growth would pick up in 2017 to allow the market to remove excess stocks.
For 2017, the IEA forecast a 1.3mn bpd increase to 97.4mn bpd, largely thanks to demand in non-OECD countries, led by India and China.
Demand in India was forecast to rise faster than anywhere in 2017, by 280,000 bpd, whereas “the main restraint on recent Chinese demand data continues to be the weakening of the domestic economy, with official estimates of economic growth easing.”
The IEA saw Europe as having been the “saving grace for oil demand,” with growth reaching a five-quarter high in the second quarter of this year.
But it added this was “unlikely to last,” given economic “precariousness” after Britain’s vote to leave the European Union, a result which “added to the uncertainty.”
Overall, the IEA indicated there remained “an ominous investment gap building up in the oil industry that might, depending on how quickly today’s record high oil stocks are eroded, create the conditions for sharply higher prices over the medium term.”
The agency also highlighted its finding that the Middle East’s market share of global oil supplies had risen to 35% the highest since the late 1970s.