Despite deeper OPEC+ production cuts, global oil supply will be about 700,000 bpd in excess of consumption in early 2020, the International Energy Agency said in its latest monthly Oil Market Report.
OPEC and its partners led by Russia agreed last week to cut their combined production by another half a million barrels daily. OPEC members will shoulder the bulk, at 395,000 bpd, while Russia and the rest of the non-members will take on an additional 105,000 bpd in cuts.
Saudi Arabia, in the meantime, agreed to continue to overcomply with its quota, cutting 400,000 bpd more than agreed in December 2018. The agreement, however, did not have the full desired effect of pushing prices higher and keeping them there, not least because of a history of cheating among OPEC members on their oil production quotas.
Now, the EIA is warning even this will not be enough.
“Despite the additional curbs and a reduction in our forecast of 2020 non-OPEC supply growth to 2.1 mb/d, global oil inventories could build by 0.7 mb/d in 1Q20,” the authority said.
Even so, the downward revision of non-OPEC supply growth in 2020 is worth noting. In its previous Oil Market Report, released in November, the authority forecast a 2.3-million-bpd increase in non-OPEC oil supply in 2020. Now, it seems it has recognized the slowdown in U.S. shale oil production growth: the main factor driving non-OPEC production growth.
On the demand side, the IEA also revised down its earlier estimate, which saw global growth of 1.1 million bpd in the third quarter of the year. Now, the IEA has revised this down, too, to 900,000 bpd. The agency noted, however, that this growth rate was the strongest year-on-year increase in 12 months. The demand growth outlook for full-2019 and 2020 remained unchanged, at 1 million bpd and 1.2 million bpd, respectively.
By Irina Slav for Oilprice.com
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There is a major glut in the global oil market estimated at 4.0-5-0 million barrels a day (mbd) created by the trade war. The build-up of the glut will continue as long as the trade war goes on.
Only an end to the trade war would stimulate both the global economy and oil demand thus starting a process of decreasing the glut level and pushing oil prices up.
The fact that oil prices have been ranging from $61-$64 a barrel for the last few months despite the glut underscores the positive fundamentals of the global oil market. An end to the trade war would be guaranteed to push oil prices beyond $75 in no time.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London