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OPEC deal to push oil market into deficit by mid-2017: IEA

Increase font size  Decrease font size Date:2016-12-15   Views:453
The global oil market will move into deficit during the first half of 2017, with demand potentially outstripping supply by some 600,000 b/d, if OPEC and non-OPEC producers manage to stick to the historic output cut deal struck in recent weeks, the International Energy Agency said Tuesday.

The "assumption" is based on OPEC fully committing to its new effective production target of 32.7 million b/d and key non-OPEC producers delivering agreed cuts of 558,000 b/d, the IEA said in its latest monthly oil market report.

The Paris-based agency had previously predicted that global oil markets would only rebalance by the end of 2017, warning that the global oil supply glut would continue to drag on prices next year without a deal by OPEC to curb output.

But OPEC's November 30 deal to cut crude output by 1.2 million b/d from January 1 and the December 10 pledge by a Russian-led group of non-OPEC producers to cut 558,000 b/d mark a "dramatic" change, the IEA said.

Global oil stocks could draw by 600,000 b/d during the first half of 2017 as a result of the moves and a slightly stronger demand outlook, the IEA said citing a "provisional view."

The IEA noted, however, that the pledged output cuts during the first half of 2017 may not play out as planned due to "contractual and logistical reasons."

"Clearly, the next few weeks will be crucial in determining if the production cuts are being implemented and whether the recent increase in oil prices will last," the IEA said.

Noting that the OPEC cuts are planned to last for six months and that OPEC's output policy will be reviewed at the group's next OPEC ministerial meeting at the end of May, the IEA also cautioned that high-cost oil producers should not bank on a firmer oil price scenario much beyond 2017.

"These high-cost producers, who assume that the cuts at the very least guarantee a floor under prices, might think twice before taking the risk of sanctioning new investments," the IEA said.

The ICE Brent front-month futures oil price, which has jumped more than 15% since OPEC's November 30 decision to cut output, stood 39 cents higher in early London trading at $56.05/b.


MARKET REBALANCING

Even as OPEC was gearing up to agree its first output cut since 2008, the IEA noted that OPEC's own crude production hit a new record high in November. The exporter group's collective crude output rose by 300,000 b/d to a record 34.20 million b/d last month, led by increases from Angola along with Libya and Saudi Arabia.

Six months of rising OPEC output means supply from the group's 14 members now stands 1.4 million b/d higher than a year ago and global oil production hit a record 98.2 million b/d last month, the IEA said.

As a result of non-OPEC promises to join OPEC's cut and help the market rebalance in early 2017, the IEA more than halved its forecast for non-OPEC oil supply growth next year by 255,000 b/d to 220,000 b/d. This year, non-OPEC supplies remain on track to fall by almost 900,000 b/d to 56.8 million b/d, it said.

Despite OPEC pushing global oil production to record highs this year, there are signs that the oil market is beginning to rebalance.

Global oil stocks continue to fall and OECD commercial oil inventories fell in October for the third month in a row to end the month at 3.027 billion barrels, their lowest level since April, the IEA said.

OECD stocks have now drawn 75 million barrels since reaching a historic high in July, the IEA said, but still remain 300 million barrels above the five-year average.


STRONGER DEMAND

On the demand side, the IEA revised upward its oil demand growth estimate for both 2016 and 2017 following upgrades to the Chinese forecasts, reductions in its previous Russian baseline numbers and US demand strength in September.

Global oil demand growth of 1.4 million b/d is now expected for 2016, 120,000 b/d higher than the IEA's previous forecast.

Oil demand growth in 2017 is now seen at 1.3 million b/d, 110,000 b/d higher than last month's report as a result of the revisions. The IEA also revised upward its outright oil demand estimate for next year by 100,000 b/d, to 97.6 million b/d.

The IEA said the most significant change to the demand estimates was from revision to Chinese demand, which was raised by 135,000 b/d this year to 11.9 million b/d. It pointed to signs of higher imports of mixed aromatics and improved coverage of China's independent refiners.

Baseline demand reductions for Russia were also a factor, trimming an average 300,000 b/d from estimates of 2010-14 Russian demand. It said European gasoil demand continues to exceed expectations supported by the region's manufacturing sector.
 
 
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