IEA says OPEC production is still a source of concern. File Image / Pixabay
Momentum building behind the notion that demand for oil is rising and stockpiles are falling resulted in West Texas Intermediate on Wednesday rising $1.07 to settle at $49.30 per barrel and Brent to climb 89 cents to $55.16.
And while Brent's significant premium over the U.S. benchmark informs analysts that the U.S. crude market needs more time to return to normal in the wake of Hurricane Harvey, they were mainly buoyed by news from the International Energy Agency that global oil demand is set to accelerate faster than anticipated this year.
According to the IEA, demand grew by 2.3 million barrels per day (bpd), or 2.4 percent, in the second quarter of 2017, prompting the agency to increase its growth estimate for the year to 1.6 million bpd, or 1.7 percent.
Neil Atkinson, International Energy Agency
There are lots of indicators on the dashboard which point to the fact that stocks are falling
For 2018, the IEA is predicting growth of 1.4 million bpd, or 1.4 percent.
Neil Atkinson, head of the oil industry and markets division for the IEA, told CNBC that "pretty robust" demand indicates that a rebalancing of the market is "underway."
He added, "ring to falling ship reserves and reduced output from the Organization of the Petroleum Exporting Countries (OPEC), which earlier this week reported that its August production fell for the first time in five month.
The IEA also predicted that impact of Hurricane Harvey on global oil markets is "likely to be relatively short-lived," with local stockpiles at "comfortable" levels before the storm hit, and releases from government reserves and European imports stemming any shortage.
Better still, the agency stated that "Depending on the pace of recovery for the U.S. refining industry post-Harvey, very soon OECD product stocks could fall to, or even below, the five-year level."
However, there's a familiar caveat: Atkinson warned that if OPEC keeps output at current levels, the cartel is unlikely to reduce stockpiles "dramatically" either this year or even in 2018.
Although OPEC's August production drop of 79,100 bpd to 32.76 million bpd earned headlines, the cartel is said to be seriously entertaining the notion of an output reduction extension beyond March of next year - by as much as six months, according to some sources.