Record 2018 Consumption Will be Outstripped by Massive Non-OPEC Supply Growth: IEA

Cutback offenders Iraq are gaining market share at the expense of the Saudis.

Reiterating what other analysts have warned for most of 2017, the International Energy Agency on Wednesday said crude production outside the Organization of the Petroleum Exporting Countries (OPEC) will grow twice as fast next year as it has this year, and outpacing demand that will raise global consumption above 100 million barrels per day (bpd) for the first time ever.

The agency stated, "For total non-OPEC production, we expect production to grow by 700,000 bpd this year, but our first outlook for 2018 makes sobering reading for those producers looking to restrain supply.

"In 2018, we expect non-OPEC production to grow by 1.5 million bpd, which is slightly more than the expected increase in global demand."

The agency was also careful not to underestimate the ability of U.S. shale to influence the market next year: "Our first look at 2018 suggests that U.S. crude production will grow year-on-year by 780,000, but such is the dynamism of this extraordinary, very diverse industry it is possible that growth will be faster."

As for OPEC's rebalancing efforts via its recently extended production cutback strategy, the IEA threw a wet rag on recent remarks by Khalid al-Falih, energy minister for Saudi Arabia, who told the press that OPEC will do "whatever it takes" to force a drawdown in global inventory levels.

The IEA stated, "'Whatever it takes' might be the mantra, but the current form of 'whatever' is not having as quick an impact as expected: indeed, based on our current outlook for 2017 and 2018, incorporating the scenario that OPEC countries continue to comply with their output agreement, stocks might not fall to the desired level until close to the expiry of the agreement in March 2018."

The IEA's findings were not good news for the Saudis, who have repeatedly lowered their own production to compensate for rogue nations intent on pumping full-out and whose crude exports are expected to fall below 7 million bpd this summer.

In fact, BloombergMarkets on Wednesday declared Iraq to be "the new Oil King," based on its estimates that it was the top crude supplier to India for a third month in May, shipping 1 million bpd, thanks to Indian refiners implementing plant upgrades that have allowed them to process crude with a higher sulfur content.

Iraq, which is one of the worst offenders of the OPEC cutback agreement (its argument that it needs crude revenues to fight ISIS notwithstanding), also loaded 12 million barrels of crude for the U.S. in the first 13 days of this month, according to Bloomberg data, about 50 percent higher than the same period in either April or May.

By contrast, Saudi flows slumped by about half.

Earlier this week in reaction to discussions that the global glut will extend well into 2018, Olivier Jakob, strategist at Petromatrix, downplayed reports of the Saudis cutting beyond their target under the OPEC guidelines: "That's also right in their seasonal pattern of lowering exports in July, August because of domestic needs," he said, adding that the cuts must continue beyond the summer months to have any positive effect.