IEA Sees a Balanced Oil Market in 2018 Despite Rising Output

IEA says OPEC will have to adhere closely to its cutbacks for the balance to be achieved. File Image / Pixabay

Despite concerns in many quarters that global crude output continues to rise both among members of the Organization of the Petroleum Exporting Countries (OPEC) as well as outside of the cartel, the International Energy Agency on Thursday said supply and demand will be largely balanced next year.

The IEA justifies its position by noting that global demand for crude has grown by 1.6 million barrels per day (bpd) this year and will adjust slightly to 1.4 million bpd in 2018; moreover, commercial stocks in industrialized countries fell in August by 14.2 million barrels to 3.015 billion, and OPEC supply was down 400,000 bpd in September from a year earlier.

Still, the agency warned that surplus is still 170 million barrels above the five-year average, and a build up of 800,000 barrels could still take place in the first quarter of 2018, making it critical that OPEC and its partners adhere closely to their crude production cutback targets: "A lot has been achieved towards stabilizing the market, but to build on this success in 2018 will require continued discipline."

Indeed, the IEA notes that non-OPEC crude supply will ultimately rise by 700,000 bpd this year and by 1.5 million in 2018 to reach 59.6 million bpd, with the U.S. being the largest contributor.

Specifically, U.S. crude output for 2017 will rise by 380,000 bpd to 9.24 million bpd, and by 680,000 bpd to 9.92 million bpd in 2018,  according to the latest figures from the U.S. Energy Information Administration; the numbers exceed the EIA's earlier forecast of a 590,000 bpd rise to 9.84 million.

As for the expectation that the glut will disappear next year, the IEA stated: "Looking into 2018, we see that three quarters out of four will be roughly balanced -- again using an assumption of unchanged OPEC production, and based on normal weather conditions.

"Taking 2018 as a whole, oil demand and non-OPEC production will grow by roughly the same volume, and it is this current outlook that might act as the ceiling for aspirations of higher oil prices."

If the analysis proves accurate, demand for OPEC's crude will rise to 32.98 million bpd in the fourth quarter of this year, above September's output, and then to fall to 31.87 million bpd in the first three months of 2018.

OPEC earlier this week, in raising its demand forecast for 2018 and reiterating its message that its cutbacks are working, also urged the U.S. to participate in the crude reduction deal on the grounds that "we cannot continue to live and operate in isolation," according to the cartel's secretary-general, Mohammed Barkindo.