Oil producers may have to contend with a “significant” oversupply even as Opec and its allies led by Russia cut output in the first half of 2019 to balance the market, the International Energy Agency said.
Opec+, as the 24-member alliance is known, agreed in December to trim global output by 1.2 million barrels per day, with 800,000 bpd coming from Opec members. Brent oil prices have failed to rally even after the agreement was announced. Prices are hovering at $60 a barrel, a 30 per cent drop from the $86 a barrel reached in early October.
“So far, the Brent crude oil price seems to have found a floor, remaining close to $60 per barrel much where it was when the ministers met,” said the Paris-based energy watchdog for the Organisation of Economic Development and Cooperation (OECD) on Thursday in a report.
“Stocks have been building with the potential for significant oversupply next year. By agreeing a cut...and additional output curbs in Canada, producers may go some way towards restoring balance to the world market.”
Earlier this month Rachel Notley, the premier of Canada’s Alberta province, said the government would force producers to trim output by 8.7 per cent, or 325,000 bpd, until excess crude in storage is cut.
Opec, which pumps more than a third of the world’s crude, is grappling with an oil glut because of record US production, tepid global demand as major economies slow down and the US granting of waivers to countries importing oil from sanctions-hit Iran.
All of these factors have helped OECD oil inventories to rise in October for the fourth month in a row, their highest level since January, the IEA said.
“Time will tell how effective the new production agreement will be in re-balancing the oil market,” the IEA said. “The next meeting of the Vienna Agreement countries takes place in April, and we hope that the intervening period is less volatile than has recently been the case.”
Opec is cutting its output after increasing production in the second half of this year to make up for an expected shortage in Iranian crude as US sanctions against Tehran were re-imposed in November.
Saudi Arabia, the world’s biggest oil exporter, and the UAE, Opec’s third-largest producer, pumped at record highs in October offsetting lower Iranian production.
The IEA has maintained its forecast for oil demand growth in 2019 at 1.4 million bpd, which is higher than Opec’s projection of 1.29 million bpd.
“Global oil demand projections have been left unchanged for 2019, as the impact of lower prices is offset by the slight downward revision to gross domestic growth and significant downward revisions to demand in Turkey and Venezuela,” the IEA said.