In a marked departure from its earlier predictions, the International Energy Agency said on Thursday that the oversupplied oil market is likely to “move close to balance” in the second half of the year as lower prices take their toll on production outside OPEC.
The current production surplus of 1,5 million barrels in the first six months of the year is expected to diminish to only 200,000 barrels per day in the latter half of 2016. This will be predominantly led by cuts in production among non-OPEC countries; mostly U.S. shale drillers.
Back in March, IEA predicted non-OPEC production in 2016 to fall by 710 000 barrels per day (750 kb/d), to 57.0 mb/d, 100 kb/d less than foreseen in February Report. This prediction was repeated in the current report.
While U.S. shale output “has been more resilient to lower prices and the drop in drilling activity than expected,” there’s growing evidence “that output declines are accelerating,” the IEA said.
“There is no doubt as to the direction of travel for the supply-demand balance,” the organisation said. “There are signs that the much-anticipated slide in production of light, tight oil in the U.S. is gathering pace.”
As Bloomberg reports, the prospect of markets re-balancing before year-end is gaining traction among analysts, with Credit Suisse Group AG predicting on Wednesday that stockpiles will contract in the third quarter.
Meanwhile, growth in global oil demand will ease to around 1.2 million barrels per day (mb/d) in 2016, below the 1.8 mb/d expansion of last year, as notable decelerations take hold across China, the United States and much of Europe. Preliminary data for the first quarter of 2016 reveal that this is already occurring, with year-on-year growth down to 1.2 mb/d, after gains of 1.4 mb/d in the final quarter of 2015 and 2.3 mb/d in the prior quarter.
In terms of new players, the IEA believes that India may overtake China as “the main engine of global demand growth” while Iran readies itself to regain its position among crude producers signalling a daily production target of four million barrels, its pre-sanctions level. In March, the country managed to produce 3.3 million barrels per day – nearly 400,000 barrels higher than at the start of the year.
The April report marks a shift for IEA, which as recently as February warned of an increased oil surplus and high risk of further price losses.
Sources: IEA, Bloomberg
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