IEA change of view: oil surplus will persist in 2017

The oil market will remain in a situation of oversupply until at least mid 2017. The International Energy Agency stresses in its monthly bulletin that it has thus reversed its previous forecasts. “Supply will continue to outpace demand at least through the first half of next year. As for the market’s return to balance — it looks like we may have to wait a while longer,” the IEA said in its report. 

Also in the report it shows that despite the prices drop, "the global oil production is still expanding, although not nearly to the frenetic pace of 2015". According to the IEA, "the global oil demand is slowing at a faster pace than initially predicted," and "for 2016 is expected to increase by 1.3 million barrels a day." In August the global offer instead fell by 0.3% due to the lower contribution from non-OPEC countries, which will restart output to grow in 2017.

OPEC production "next to the record", on his part, "more than offset" with Iran that reached post-sanctions highs and Saudi Arabia that has regained the scepter of the world's largest manufacturer that had been torn by the US. "The US, once non-OPEC supply growth dynamo, account for half of the decline in production since the investments cut by independent producers have had an almost immediate impact," says the bulletin.

The thud of the growth in demand by 1.4 million barrels per day in the second quarter to a minimum of two years of 800 thousand barrels per day in the third quarter, the IEA points out, depends on the macroeconomic situation: "Recent pillars of growth question, China and India, are teetering, after over a year of oil around $ 59 is fading as the low-price fuel stimulus and economic concerns in developing countries have not helped. " In addition, "the unexpected increases in Europe have disappeared, while there was a tremendous slowdown in the US." Meanwhile stocks "are expanding to levels never seen before."

Since mid-2014, when oil prices were over $100 a barrel, the value of a barrel had been on the decline, hitting $30 at the beginning of 2016. Now, with both the IEA and OPEC predicting a glut — and with production showing no signs of stopping — oil prices are again on the decline.

So, it's necessary to understand why producers don't slow to pump oil. For OPEC countries, it's a part of two-year-old-strategy, to protect their share of the market from non-OPEC countries. However, the policy could be revised at the International Energy Forum in Algiers in the end of the month, when OPEC will met Russia to hold discussions on a new energy plan.

“This was a marked shift in outlook by the IEA,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas 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 for the re-balancing of the market.”