The two big stories about oil markets over the past month have been the initial public offering of Saudi Aramco and the deeper production cuts agreed to by the oil-producing countries that comprise OPEC+. The International Energy Agency (IEA), in its monthly report for December released Thursday, only looks at the second.

The revised OPEC+ agreement sliced an additional 500,000 barrels from daily output, leaving daily production 1.7 million barrels a day below its level in October 2018. Saudi Arabia said it will voluntarily cut an additional 400,000 barrels a day from its production, bringing the total reduction to 2.1 million barrels a day.

According to the IEA, the sharper cuts will make no difference. On the supply side, the IEA commented: “Despite the additional curbs and a reduction in our forecast of 2020 non-OPEC supply growth to 2.1 [million barrels a day], global oil inventories could build by [700,000 barrels a day] in 1Q20. In November, global oil supplies held steady at 101.36 [million barrels a day], down 1.2 [million barrels, year over year].” Oil production in 2018 averaged 98.3 million barrels a day, according to the IEA.

For the third month in a row, the agency forecasts global crude oil demand in 2019 at 1.0 million barrels a day and 2020 demand growth of 1.2 million barrels. Demand rose by 900,000 barrels a day (year over year) in the third quarter, largely on increased demand from China and India. Demand from the developed countries of the OECD is expected to decline by 75,000 barrels a day this year.

The implication here is that OPEC+ will need to reduce production even further if the group is serious about pushing crude oil prices higher. Non-OPEC production growth is now forecast to rise by 2.1 million barrels a day, a decrease of 200,000 barrels from the IEA’s previous forecast. The agency attributes the decline to “lower output from participants in the OPEC+ deal and a weaker growth outlook for Brazil, Ghana and the United States.” The salient point is this one, however: “Even so, with our demand outlook unchanged, there could still be a surplus of [700,000 barrels a day] in the market in 1Q20.”

Brent crude traded at around $64.20 a barrel Thursday morning, up about 0.8% for the day and nearly $2 a barrel higher in the past 30 days. Since the mid-September spike following the drone attack on Saudi processing facilities, Brent currently trades about $5 barrel lower. The six-month futures contract (August 2020) was selling for $60.66 a barrel Thursday morning.

West Texas Intermediate traded up about 0.5% Thursday morning at $59.20, also about $2 a barrel higher over the past 30 days and nearly $4 a barrel less than the post-drone-attack peak. The WTI six-month futures contract (July 2020) sold for $56.96 a barrel Thursday morning.

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