Close on the heels of crude falling below $50 a barrel, the International Energy Agency has forecast that a resurgent US shale oil industry will see global supplies grow faster than demand in 2018.
The IEA expects global demand to increase by 1.4 million barrels per day (bpd) next year — up from 1.3m bpd in 2017 — as China and India take total consumption above 100m bpd for the first time in the second half of the year. But this increase in demand is set to be outpaced by growth in supply. Total non-OPEC production in 2018, led by the US, is set to rise by 1.5 million bpd — or more than double the rate of growth this year.
The forecast in the Paris-based energy body’s closely watched monthly report is its first for 2018, and comes after OPEC and Russia this year joined forces to cut output and reduce an oil market surplus that is keeping pressure on prices.
The forecast from the International Energy Agency comes as higher than expected demand growth next year is met by even stronger output from the US and other producers outside of the OPEC cartel. “Oil demand should outpace supply in the second half of this year but excess inventories will persist well into 2018, dealing a blow to global crude producers enacting output cuts to bring down stubbornly high stockpiles,” says IEA in its monthly oil market report, which include forecasts for next year.
Paris-based IEA said that the outlook for 2018 makes sobering reading for those producers looking to restrain supply.
OPEC and Russia have joined forces this year to cut output and reduce an oil market surplus that is keeping pressure on prices. Producers agreed in May to extend production cuts for a further nine months as US shale production accelerates and countries exempt from the curbs pump more.
US shale oil production will contribute more than half of the 1.5 million bpd in non-OPEC supply growth forecast for next year. It is expected to rise by 780,000 bpd after an increase of 430,000 bpd in 2017. “Such is the dynamism of this extraordinary, very diverse industry it is possible that growth will be faster,” the IEA said.
The IEA said, however, that oil supplies should tighten in the second half of this year, when demand is seasonally stronger, due to the combined 1.8 million bpd of supply cuts agreed by OPEC, Russia and other producers. OPEC and its allies will need to create a deficit of at least 1 million bpd over the next nine months.
“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,” said the IEA.
OPEC crude oil output rose by almost 300,000 bpd in May to around 32 million bpd, the highest level this year, as output recovered in conflict-hit Libya and Nigeria, which were exempt from the supply deal.
Oil traders are growing sceptical about the effectiveness of the supply curbs, with Brent down by 13 per cent to $47 a barrel. On 4 January this year, three days after the curbs came into effect, Brent crude was at $58 a barrel.