The global oil glut will last through 2016 as the strongest demand growth in five years and faltering supply fail to clear the surplus, according to the International Energy Agency.
Record inventories will expand further even as consumption growth doubles in 2015 and supplies outside OPEC contract next year for the first time since 2008, the IEA predicted. Stockpiles won’t be diminished until the fourth quarter of next year, or even later if sanctions on Iranian crude are lifted, the agency said.
“While a rebalancing has clearly begun, the process is likely to be prolonged as a supply overhang is expected to persist through 2016 -- suggesting global inventories will pile up further,” the Paris-based adviser to 29 nations said in its monthly report.
Oil slumped to a six-year low near $40 a barrel in New York Tuesday as OPEC members boost output to defend market share, U.S. production withstands falling prices and concerns grow that China’s economy is becoming less stable. Supply could expand further after Iran reached an agreement with world powers on July 14 that will remove restrictions on its oil sales in return for curbing nuclear development.
The global oversupply will average 1.4 million barrels a day in the second half of this year, straining available storage capacity, before easing to about 850,000 barrels a day in 2016, the IEA estimated. The production surplus in the second quarter was 3 million barrels a day, the highest in 17 years, it said.
“Global supply continues to grow at a breakneck pace,” the IEA said. The Organization of Petroleum Exporting Countries kept output near a three-year high at 31.79 million barrels a day in July as record Iraqi production helped offset a pullback by Saudi Arabia, according to the report.
The IEA boosted estimates for the amount of crude needed from OPEC in 2016 by 600,000 barrels a day to 30.8 million a day. That’s still about 1 million a day lower than current output. Iran could lift production to 3.6 million barrels a day from about 2.9 million currently “within months” of international trade restraints being lifted, the IEA said.
Global demand in 2015 will grow at more than twice the pace last year as low prices spur consumption in the U.S. and economies recover, the agency said. World oil use will expand by 1.6 million barrels a day this year to average 94.2 million barrels a day. U.S. benchmark crude futures gained 64 cents to $43.72 a barrel as of 9:52 a.m. on the New York Mercantile Exchange.
The IEA raised its estimate for oil consumption in 2016, projecting growth of 1.4 million barrels a day to total 95.6 million a day. That’s an increase of 400,000 a day from last month’s report.
“The IEA is turning more positive as they finally realize that demand will stay strong,” Giovanni Staunovo, an analyst at UBS Group AG in Zurich, said by e-mail. “We still need to work off the large excess in production, and that takes time, but the market is projected to be balanced in the second half of next year.”
Non-OPEC supplies will shrink by 200,000 barrels a day in 2016 to 57.9 million a day, with the U.S. the “hardest hit” among those producers, which also include Canada, Brazil and Russia, the IEA forecast.
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