The oil market saw a rather significant surplus in the first half of 2019, much larger than previously expected. Looking forward, supplies are set to tighten in the second half of the year, but that may only be a hiatus before the glut returns.
Global oil supply exceeded demand by about 0.9 million barrels per day (mb/d) in the first six months of this year, according to the International Energy Agency’s latest Oil Market Report.
Slowing oil demand growth and a persistent global glut will cap oil prices and keep them from rising too much, barring serious escalations in geopolitical tensions, Fatih Birol, the executive director of the International Energy Agency (IEA), said to Reuters in an exclusive interview.
“Prices are determined by the markets…If we see the market today we see that the demand is slowing down considerably,” Reuters quoted Birol as saying during an energy conference in India. According to the head of the Paris-based agency, substantial amounts of oil from the U.S. are flooding the market, and oil output also grows in Iraq, Brazil, and Libya.
This increase in supply, however, has now created a global glut, the IEA said in its latest Oil Market Report. Oil supply outstripped demand by 900,000 bpd in the first half of this year, the IEA said last week, warning that the oil market rebalancing has slowed down.
“This surplus adds to the huge stock builds seen in the second half of 2018 when oil production surged just as demand growth started to falter. Clearly, market tightness is not an issue for the time being and any re-balancing seems to have moved further into the future,” the IEA said.
The conclusions echo those of OPEC itself, which said in its own report published a day earlier that the “call on OPEC” will be significantly lower next year. Rising U.S. shale production will exceed additional demand both this year and next, which means that the market could see a significant surplus in 2020. In other words, OPEC+ faces a conundrum:
All three of the major forecasters – OPEC, IEA and EIA – see robust supply growth from U.S. shale. The specific figures vary, but they generally see non-OPEC production (with U.S. shale accounting for most of the total) growing by around 2 mb/d this year, and by even more next year. In other words, non-OPEC supply growth for both 2019 and 2020 exceed demand.