Oil supply could shift into deficit in the H1 if OPEC pact holds: IEA

oil supply
The International Energy Agency issued a report on Wednesday, predicting the global oil supply will rebalance sometime during the first half of 2017.  Statoil photo by Ole Jørgen Bratland.

Patience required if waiting for oil supply balance

The International Energy Agency says even though global oil inventories rose for the first time in January, if OPEC holds fast and continues to cut production, demand should outpace supply in the first half of 2017.

The IEA issued its monthly report on Wednesday, one day after OPEC released its own, much less optimistic report.

In the report issued by OPEC, the cartel forecast a rebalancing of supply and demand would not occur until the second half of this year.

The IEA acknowledges the build of industrialized nations’ crude stocks for the first time since July, by 48 million barrels to 3.03 billion barrels, more than 300 million barrels above the five-year average.

“The actual build in OECD stocks in January reminds us that it may be some time before global stocks start to fall,” the agency said.

According to the IEA, the buildup is the result of OPEC countries bolstering their production to record levels prior to the commencement of the output deal, as well as increased US shale oil output.

Compliance with the OPEC deal was 91 per cent in February.

The IEA says if the cartel members continue to meet their pledges, there will be an implied market deficit of 500,000 b/d.


“If current production levels were maintained to June when the output deal expires, there is an implied market deficit of 500,000 b/d for 1H17, assuming, of course, nothing changes elsewhere in supply and demand,” the IEA said.

“For those looking for a re-balancing of the oil market the message is that they should be patient, and hold their nerve.”


So far, Saudi Arabia has shouldered most of the production cuts and has offset poorer compliance shown by other participants.

In February, Saudi oil production increased by 180,000 b/d to 9.98 million b/d, below its agreed upon target of 10.06 million b/d, Reuters reports.


“At 32.3 million b/d, the call on OPEC crude during the first quarter of 2017 is higher than average output of 31.9 million b/d so far this year, which could lead to a draw in global inventories,” the IEA reported.

It is unsure if the group will extend the oil supply pact.

“Beyond the nervousness about this legacy supply and concerns about rising production today from some non-OPEC countries; the implementation of the OPEC production agreement appears in February to have maintained the solid start seen in January.”

Saxo Bank senior manager Ole Hansen said the report did not rock the boat as the OPEC report did yesterday.

“As long as OPEC stays on track and non-OPEC delivers on their agreed cuts the market will continue to balance,” he said in an interview with Reuters.

Outside OPEC, oil production rose 90,000 b/d in February, as increasing US shale output offset declines elsewhere.

At this time last year, total non-OPEC supply was 285,000 b/d lower, with the US accounting for roughly half, according to the IEA.

“The recovery path of U.S. tight oil is key to rebalancing the oil market over 2017, so is the compliance of the 11 non-OPEC countries that agreed to curb output,” the IEA said.

The IEA maintained its estimate of global demand growth in 2017 at 1.4 million b/d, unchanged from its last repor.

“The market is still dealing with a vast amount of past supply, which will take time to work its way through the system. Meanwhile, demand growth has not provided any further encouragement after three consecutive months when we upgraded our estimates,” the IEA said.