Oil supply growth expected to outpace consumption in 2018: IEA

Oil supply from non-OPEC production expected to grow by 700,000 b/d in 2017

In 2018, the increase in oil supply is expected to outpace anticipated demand of over 100 million barrels per day (b/d), according to a report by the International Energy Agency released on Wednesday.

The EIA report said non-OPEC production is forecast to grow twice as quickly in 2018 as it will do this year, while the OPEC supply cut agreement is in play.

“For total non-OPEC production, we expect production to grow by 700,000 b/d this year, but our first outlook for 2018 makes sobering reading for those producers looking to restrain supply,” the IEA said.

“In 2018, we expect non-OPEC production to grow by 1.5 million b/d which is slightly more than the expected increase in global demand.”

Following the report, Brent crude futures fell 64 cents to $48.08/barrel by 08:04 GMT, from around $48.26 prior to the release.

Oil inventories in most industrial nations rose in April by 18.6 million barrels to 3.045 billion barrels.  According to the EIA, stocks were up 292 million barrels over the five-year average.

In the report, the EIA forecast an implied shortfall in supply relative to demand in the second quarter of 2017.

But as demand growth slows in China and Europe while supply increases, the deficit should narrow to 500,000 b/d from a prior estimate of 700,000 b/d.

Saudi Arabia’s Energy Minister Khalid al-Falih said OPEC will do “whatever it takes” to force a drawdown in global inventory levels.

“We have regularly counselled that patience is required on the part of those looking for the rebalancing of the oil market, and new data leads us to repeat the message,” the IEA said.

“‘Whatever it takes’ might be the mantra, but the current form of ‘whatever’ is not having as quick an impact as expected.”

“Indeed, based on our current outlook for 2017 and 2018, incorporating the scenario that OPEC countries continue to comply with their output agreement, stocks might not fall to the desired level until close to the expiry of the agreement in March 2018,” the IEA said.

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Rising US output has been one of the main roadblocks to reducing the global oversupply of crude.  The EIA estimates US production will continue to aggressively grow in 2018.

“Our first look at 2018 suggests that U.S. crude production will grow year-on-year by 780,000 but such is the dynamism of this extraordinary, very diverse industry it is possible that growth will be faster,” the EIA wrote.

The agency has upped its prediction for total US production for 2017 by 90,000 b/d higher, to an average of 13.1 million b/d.

Crude output from OPEC members grew by 290,000 b/d in May to 32.08 million b/d, still within limits set out by the OPEC pact.  Resurgence in Libyan and Nigerian production accounted for the increase.

Compared to May 2016, OPEC production was down by 65,000 b/d, according to the IEA.  Non-OPEC production rose by 295,000 b/d month-on-month in May to 57.9 million b/d, 1.25 million b/d higher than this time last year.