OPEC: Fundamentally, Oversupply Still Persists

OPEC says the global glut will increase to 950,000 barrels if its members keep producing full-tilt.

No sooner did the International Energy Agency (IEA) assert that global oil and supply demand will soon get very close to balance, the Organization of the Petroleum Exporting Countries (OPEC) says in its latest Monthly Oil Market Report (MOMR) that the glut may increase this year due to some members boosting output.

OPEC reiterated an earlier prediction that world oil demand will rise by 1.20 million barrels per day (bpd) this year and that the demand for the cartel’s crude will average 31.49 million bpd.

The report also states that if OPEC members keep producing at the sky-high April rate of 32.44 million bpd, the 2016 average daily surplus will be 950,000 barrels – up from 790,000 bpd implied in its previous report.

Given these numbers, in somewhat of an understatement OPEC wrote in the report that, "Fundamentally, oversupply still persists; oil output remains high."

Analysts have repeatedly stated that a persistent surplus could negatively affect prices, but markets in recent weeks have also shown a willingness to shrug off potentially bearish news and maintain a generally upward trend.

OPEC also maintained its prediction that supply from non-member producers will decline by 740,000 bpd this year and that this will “likely flip the global oil market into a net deficit in 2017."

Earlier this week, the IEA stated in its latest oil market report that the long-awaited rebalance of supply and demand is becoming more evident, with surplus possibly shrinking later this year; it noted that falling non-OPEC supply and rising demand, which it pegs at between 1.2 and 1.4 million bpd, could cause oil stock growth to decline in the latter half of 2016.