There is little doubt that leading oil producers have re-committed to do whatever it takes to underpin the market and to support the long process of re-balancing, even as growth in consumption helps reduce the three-year-old overhang of unsused fuel, the International Energy Agency (IEA) said.
It said in its latest monthly market report that it continues to see global demand for crude growing by 1.6 million barrels per day (bpd) in 2017, before moderating to 1.4 million bpd in 2018.
“Looking into 2018, we see that three quarters out of four will be roughly balanced – again using an assumption of unchanged OPEC production, and based on normal weather conditions,” the IEA said, adding that its current numbers for the first quarter of 2018, however, implied a stock build of up to 0.8mb/d.
Taking 2018 as a whole, oil demand and non-OPEC production will grow by roughly the same volume and it is this current outlook that might act as the ceiling for aspirations of higher oil prices. Leading oil producers will have looked at their market balances and probably drawn the same conclusion, the report said.
According to the IEA, the next few weeks ahead of the producers’ meeting in Vienna on November 30 will be crucial in shaping their decision on output.
“A lot has been achieved towards stabilising the market, but to build on this success in 2018 will require continued discipline,” it said.
Over the last few months, questions had lingered about whether producers were seriously committed to their agreement to cut output and balance the market. While there may still be doubts about some of them, the market heavyweights have once again walked into the ring, the IEA said, pointing to the high-level summit between Russia and Saudi Arabia weeks before the OPEC meeting.
Meanwhile, detailed analysis of the global balance shows that in 2017 each quarter will show a deficit, other than a tiny build in 1Q17, and, for the year as a whole, stocks will fall by 0.3 mb/d, the IEA said, adding that this assumes OPEC crude oil production remaining at 32.7 mb/d.
“Data is of course subject to revision, but we can now clearly see a major reduction in floating storage, oil in transit, and stocks held in some independent areas.”
In the OECD, the five-year average stock overhang is now down to 170 mb from 318 mb at the end of January and stocks have fallen in months when they normally increase, offsetting net builds in China, the IEA said.
In the case of China, there is always a margin for error in data that is often derived rather than reported, but crude imports have fallen every month since June and the implied net build for China’s stocks in September was relatively small at 100 kb/d, it added.