The global oil market could slip into deeper oversupply on the back of non-OPEC production growth led by the United States, the International Energy Agency said in its latest Oil Market Report.
“The main factor,” the IEA said, “is US oil production. In just three months to November, crude output increased by a colossal 846 kb/d, and will soon overtake that of Saudi Arabia. By the end of this year, it might also overtake Russia to become the global leader.”
Commenting on the recent reversal in oil prices, the authority attributed it to profit-taking and a market correction spanning all industries, adding that oil’s fundamentals supported a decline in prices.
The situation in the United States suggests that history is repeating itself and what we are seeing now is indeed a second shale revolution that could bring petroleum liquids production on par with global demand growth.
But that’s not all. The IEA noted the recent shipment of the first U.S. condensate cargo to the UAE, which although unique might prove to be the start of a new era in international oil trading patterns.
The news is certainly not good for OPEC and, to a lesser extent, Russia, but there is some light at the end of the tunnel: global economic growth could turn out to be stronger than previously expected and this would help offset the impact of growing U.S. production on prices and keep them where they are now.
The authority hinted that the end of the OPEC deal could be in sight given that the overhang in OECD oil inventories has shrunk to just 52 million barrels from 264 million barrels a year ago, but added that the trend in oil prices could convince the cartel to wait.
Separately, the IEA maintained its 2017 oil demand growth estimate at 1.6 million bpd and said this year demand will grow by 1.4 million bpd, a 100,000-bpd upward revision on the January OMR estimate thanks to IMF’s expectations of stronger economic growth this year.