The International Energy Agency (IEA) issued its monthly Oil Market Report on Friday morning. In the December report the IEA said that November’s global crude oil supply rose by 50,000 barrels a day compared with October supply and averaged 96.9 million barrels a day. That is 900,000 barrels a day more than in May 2015 and more than 2 million barrels a day more than at the end of the third quarter last year.
The IEA’s global demand growth for 2016 is now forecast at 1.2 million barrels a day, slightly lower than the current estimate for demand growth of 1.3 million barrels a day in the fourth quarter of this year. Third-quarter demand rose by 2.2 million barrels a day.
OPEC production rose to 31.73 million barrels a day in November, according to the IEA, more than 400,000 barrels a day above the IEA’s estimate of 31.3 million barrels for the 2016 “call” on OPEC production. Non-OPEC supply totaled 58.5 million barrels a day in November, but annual growth has slowed from 2.2 million barrels a day at the beginning of 2015 to less than 300,000 barrels a day.
Here are some comments from the IEA’s report:
- OPEC’s decision to scrap its official production ceiling and keep the taps open is a de facto acknowledgment of current oil market reality. The exporter group has effectively been pumping at will since Saudi Arabia convinced fellow members a year ago to refrain from supply cuts and defend market share against a relentless rise in non-OPEC supply. …
- But the freewheeling OPEC policy does not – for now – alter the status quo on its supply. We see only limited upside potential until Iran starts to ramp up output assuming sanctions are eased next year. …
- There is evidence the Saudi-led strategy is starting to work. Lower prices are clearly taking a toll on non-OPEC supply, with annual growth shrinking below 0.3 mb/d in November from 2.2 mb/d at the start of the year. A 0.6 mb/d decline is expected in 2016, as US light tight oil – the driver of non-OPEC growth – shifts into contraction. As companies make further spending cuts in reaction to sub-$50/bbl oil, the impact on supplies – both from non-OPEC and OPEC – will be even more pronounced in the longer term.
Markets have reacted to Friday’s IEA report by knocking about 1.5% off the price of benchmark West Texas Intermediate (WTI), now trading at around $36.22 after closing at $36.76 on Thursday. Brent traded down about 1.6% at $39.09.
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