IEA Asserts that Market is Rebalancing as U.S. Shale Closes in on Record Production

IEA insists that a return to the five year average for oil will occur early next year. File Image / Pixabay

Despite indications on Monday that Chinese demand for crude might not be as strong as analysts assumed, the International Energy Agency has upwardly revised its forecast and pegs global oil demand at 1.5 million barrels per day (bpd) this year (100,000 bpd more than it predicted in July), with demand growing by a further 1.4 million bpd into 2018.

However, the outlook comes as crude output from the U.S. has climbed in 9 of the last 10 months, and the IEA concedes that output in the Permean alone will rise by 64,000 barrels in September to a record of 2.5 million bpd.

Production from the Eagle Ford and Bakken regions are also expected to rise in September, to 1.39 million and 1.05 million bpd respectively; meanwhile, output in the Anadarko region is poised to reach 459,000 barrels.

All told, this will amount to 6.15 million bpd being produced by the Americans next month.

The IEA stressed that more time is needed before the evolving fundamentals are felt by the market, especially given the output expansion by Libya and Nigeria, the two renegade countries that the Organization of the Petroleum Exporting Countries (OPEC) failed to take to task in its recent meeting to rein in overly-ambitious producing nations.

Neil Atkinson, head of the oil industry and markets division at the IEA, offered a glimpse into his agency's mindset by stating, "Although stocks are beginning to fall, they're falling from a very great height," and he added that if OECD stocks continue to fall at rates seen earlier this year, it will take until early next year to return to the desirable five-year average.

Atkinson echoed other experts by reiterating the catch-22 facing the market when prices finally go begin to move upward: he said they will be "capped by the likelihood of more supply coming on stream from the U.S."

In a sense, the IEA report dovetails the most recent OPEC projections for its optimism: last week the cartel also anticipated an impending market rebalance and boosted its estimates for oil demand based on stronger than expected fuel consumption.