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oil demand is expanding at its fastest pace in five years thanks to
rebounding economic growth and low prices, but global oversupply will
last through 2016, the West’s energy watchdog said yesterday.
International Energy Agency said in a monthly report that it was steeply
raising its demand growth outlook for this year and 2016, and expected
non-Opec supply growth to decline next year, with US producers hardest
“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
The view from the IEA chimes with that of the US
government, which on Tuesday lowered US production forecasts, signalling
that a 60% rout in benchmark prices since last summer may finally be
weighing on shale output.
Oil prices have fallen to below $50 per
barrel, pressured by an abundance of supply and a strong dollar. The
views from the IEA are more bullish than those of Opec, which on Tuesday
raised its forecast of oil supplies from non-member countries.
IEA said it saw global oil demand rising by 1.6mn barrels per day (bpd)
in 2015, up 260,000 bpd from its forecast last month, citing solid
economic growth and consumers responding to lower prices.
“That’s the biggest growth spurt in five years and a dramatic uptick on a demand increase of just 0.7mn bpd in 2014,” it said.
added that persistent macroeconomic strength will support above-trend
growth at 1.4mn bpd in 2016, up 410,000 bpd from its previous forecast.
The decline in crude prices has prompted oil companies to cut their
“While a drop in costs and efficiency improvements
will help to offset some of the spending cuts, output is likely to take
a hit soon,” the IEA said.
The IEA said it saw non-Opec supply
growth slowing sharply from a 2014 record of 2.4mn bpd to 1.1mn bpd this
year and then contracting by 200,000 in 2016 — with the US hardest hit.
The prediction signals that Opec’s strategy of not cutting output,
and hurting rival producers instead with lower prices, might be finally
However, the strategy, introduced in November last year,
has created such global oversupply that it will take another year and a
half to absorb the glut.
“Our latest balances show that while the
overhang will ease from a staggering 3.0mn bpd in the second quarter of
2015, its highest since 1998, the projected oversupply persists through
the first half of 2016,” the IEA said.
Assuming Opec production
continues at around 31.7mn bpd — its recent three-month average —
through 2016, the second half of 2015 will see supply exceeding demand
by 1.4mn bpd, testing storage limits worldwide, the IEA said.
surplus will drain down to about 850,000 in 2016, with the final three
months of 2016 marking the first quarter of a potential stock draw.
“This outlook does not include potentially higher Iranian output in the case of sanctions being lifted,” the IEA said.
said a stronger demand outlook and slower non-Opec growth have raised
the call on Opec crude for 2016 to 30.8mn bpd, 1.4mn bpd higher
year-on-year and up 600,000 bpd from the IEA’s forecasts in its previous
But the new, higher call on Opec is still far below the
group’s current production volumes, which are holding steady near a
three-year high due to robust pumping from Saudi Arabia and record-high
As a result of huge global oversupply, OECD
inventories increased counter-seasonally by 9.9mn barrels to an all-time
high of 2.916bn barrels in June, the IEA said.
Oil prices rose
yesterday after the IEA’s upbeat report outweighed the bearish impact of
a further weakening of China’s currency and disappointing Chinese
industrial data, with Brent crude up 18¢ at $49.36 a barrel by 1317 GMT.