Oil bulls just can’t seem to catch a break. After prices were hammered at the end of last week on higher investor figures, this week it has emerged that OPEC production reached a new record last month. And to compound the misery, today the International Energy Agency issued a report claiming that oil demand growth is set to slow next year. Together these two developments indicate that the oil market is unlikely to return to balance anytime soon.
Oil bulls: No relief in sight
The OPEC Monthly Oil Market Report released on Wednesday 10 August, reports that OPEC output rose in July by around 47,000 barrels of oil per day to 33.1 million barrels according to Capital Economics. These figures include the cartel’s new member Gabon.
Production in the Gulf States increased to meet higher domestic demand due to hot weather. Output in Iraq rebounded after June’s maintenance work and production in Libya and Nigeria fell due to continued disruption from militants.
OPEC’s oil market forecasts were mostly unchanged in this month’s report. The cartel expects demand growth to be about 1.2 million bpd in 2016 falling to 1.15 million bpd in 2017. Non-OPEC supply is expected to contract by 0.8 million bpd this year (this figure was also unchanged even though the US Energy Information Agency published a report only a few hours before the OPEC release suggesting that US oil production may fall by 120,000 bpd less than previously expected this year).
Weighing in on OPEC’s statement, Capital Economics writes:
“The reduction in the estimates of how much non-OPEC production will fall this year will surely highlight the risks that other producers will take advantage of any increase in prices as a result of a production freeze and increase their own output. As such, we do not expect the group’s next informal meeting – which should take place at the end of next month – to be any more successful in getting agreement to limit oil output than the last meeting in Doha.”
Rising OPEC supply is nothing but bad news for oil prices. To pile on the pressure only a day after OPEC’s production report was released the IEA published research showing that OPEC’s forecasts for 2017 may be overoptimistic.
Demand growth slowing
According to a report issued by the agency this morning, global oil demand growth is expected to slow from 1.4 million bpd this year to 1.2 million bpd in 2017; that’s 100,000 bpd weaker than the agency estimated last month. Moreover, the IEA estimates that non-OPEC production will rebound by 300,000 bpd next year, an upward revision of 200,000 bpd from previous forecasts on lower US shale production costs.
The IEA also noted that global demand growth had weakened since the start of 2016 led by declines in demand from the US, China and India. On the other hand, production from OPEC nations and those outside the cartel added 800,000 bpd of supply to the market.
It looks as if the oil market isn’t going to stabilise anytime soon.
Photo by chris toe pher