Americas News
OPEC Says Glut Will Clear Next Year, But IEA Seemingly Contradicts Itself With Contrary Opinion
Even though the International Energy Agency stated that it expects the global glut to be cleared next year, there was apparently enough doubt and gloomy data worked into its latest monthly report to spook investors, who caused West Texas Intermediate to drop 70 cents and settle at $50.60 per barrel, and Brent to settle down 69 cents to $56.25.
The consternation is said to stem from the report's disclosure that despite headway having being made in reducing inventories and rising demand looking promising for the future, surging output from U.S. shale producers and elsewhere could mitigate these efforts.
It concluded that cumulatively, this could result in crude inventories remaining bloated next year, despite global demand set to rise in 2018.
So upset were traders that not even Energy Information Administration news that U.S. stockpiles decreased by 2.75 million barrels last week could prevent market losses.
Joseph Bozoyan, portfolio manager at Manulife Asset Management LLC, remarked, "Investors will kind of look to see evidence of continued crude draw-downs before they get really bullish."
Brent Belote, founder of Cayler Capital LLC, added, "In terms of the glut, it's a factor of how fast shale can ramp up.
"it's a big worry: I think you can rally, but rallies will be capped for the next nine months to a year."
However, the IEA seems to be contracting itself: while some news reports reiterated the agency's claim that chances of reducing the global glut seem slim next year - especially if the Organization of the Petroleum Exporting Countries (OPEC) maintains its rate of output cutbacks - the agency on Thursday also made headlines for forecasting that supply and demand will be largely balanced in 2018, despite rising U.S. shale and as long as OPEC adheres closely to its cutbacks.
This particular take on the market is something OPEC agrees with: Bloomberg on Thursday cited people familiar with the cartel's internal forecasts as stating that while stockpiles in developed nations were still about 171 million barrels above the five year average in August, expected trends in supply and demand will eliminate the surplus in about a year.
The sources added that the forecast presumes Libya and Nigeria's production will remain at current levels and U.S. shale output will expand by no more than 500,000 barrels per day next year.
OPEC and its allies will hold a meeting in Vienna on November 30 to decide whether to prolong the cutback measures beyond their March 2018 expiry.
A clearer and more consistent forecast of what lies ahead next year - at least in terms of prices - was provided earlier in the week by Deloitte Services, which surveyed 250 U.S. oil executives: two-thirds of them think crude will remain below $60 throughout 2018 and won't hit $70 until at least the next decade.
