The International Energy Agency, OPEC and the US Energy Information Administration have released new monthly reports for August, offering the latest snapshot into the oil markets.
The main takeaway in the IEA report was that global oil markets are balancing, although slowly. Demand is accelerating as consumers around the world take advantage of low oil prices.
The IEA estimates that demand will rise by 1.6 million barrels per day in 2015, the fastest pace in five years and a sharp jump from the 1.4 million bpd estimate last month, Oil Price reported.
On the supply side, global oil production fell by 0.6 million bpd in July, as producers outside the Organization of Petroleum Exporting Countries cut back. The IEA thinks that non-OPEC production will rise by only 1.1 million bpd this year, which pales in comparison to the 2.4 million bpd expansion in 2014. Furthermore, non-OPEC supply will fall by 200,000 barrels per day next year as cuts in spending and drilling take their toll.
In other words, demand is rising and supply is contracting, pointing towards a balancing in oil markets. The big question is when will the markets finally rebalance?
Despite slowing non-OPEC supply, on the whole “global supply continues to grow at a breakneck pace—currently running 2.7 million bpd above a year earlier,” the agency says.
So even though demand is growing at its fastest pace in five years at 1.6 million bpd, that is overwhelmed by 2.7 million bpd supply expansion expected this year.
As a result, the IEA thinks the “process is likely to be prolonged as a supply overhang is expected to persist through 2016—suggesting global inventories will pile up further.”
Energy analysts have kept their eyes fixed on US oil storage levels, but the IEA says that with global output exceeding demand by 1.4 million bpd in the second half of this year, storage levels around the world could be tested. And none of this takes into account the possibility of Iranian oil coming back on stream.
Many in the oil industry have already come to grips with the fact that a swift rebound in oil prices is not on the cards, and the IEA even cites the new mantra sweeping across the sector: “Lower for longer.”
OPEC’s monthly report provides numbers that are not drastically different. OPEC is a little less bullish on global demand, expecting demand to rise by just 1.38 million bpd this year. But the group also thinks that non-OPEC supply will grow slower than the IEA estimate, expanding by just 0.96 million bpd in 2015.
And OPEC is doing its part to keep the world oversupplied. OPEC’s collective output surpassed 31.5 million bpd in July, above the group’s target of 30 million bpd. That came after several members increased output.
One thing all of the energy projections agree upon is that US shale producers, despite their resilience up until now, will bear the brunt of the production decline over the next year.
The EIA estimates that production has already begun declining, having dropped 100,000 barrels per day in July, with monthly declines expected through much of 2016. It believes US output will drop from 9.4 million bpd in 2015 to just 9.0 million bpd next year, a large downward revision compared to estimates from just a month ago.
