Unplanned disruptions to oil output could help run down a global overhang of unused crude this year, while demand will profit from growing gasoline consumption particularly in India and China, the International Energy Agency said on Thursday.
The IEA said output from non-OPEC producers is expected to fall by 800,000 barrels per day (bpd) in 2016, an acceleration from the agency’s previous forecast for a fall by 710,000 bpd.
On the demand front, the Paris-based IEA left its forecast for global growth broadly unchanged at 1.2 million bpd for this year, but said the risks to future forecasts lay to the upside.
“Any changes to our current 2016 global demand outlook are now more likely to be upwards than downwards, as gasoline demand grows strongly in nearly every key market, more than offsetting weakness in middle distillates,” the IEA said in its monthly Oil Market Report.
“Slower demand growth in OECD (Organisation for Economic Co-operation and Development) countries is not unexpected; it represents a return to the norm,” it added.
This marks a far cry from the IEA’s warning at the start of the year that the oil market could “drown in supply” in 2016, given the pace of stock-building and the net rise in global production at the time.
The IEA noted the warning last month from the International Monetary Fund, which cut its global economic growth forecast in 2016 to 3.2 percent from 3.4 percent.
Yet robust consumption in the likes of China, Russia and India in particular, could help offset any declines stemming from a slowing economic backdrop.
“India is the star performer: oil demand in the first quarter of 2016 was 400,000 bpd higher year-on-year, representing nearly 30 percent of the global increase. This provides further support for the argument that India is taking over from China as the main growth market for oil,” the IEA said.
OPEC PUMPS, RIVALS STALL
On the supply side, a wildfire in the Canadian province of Alberta has taken more than 1 million bpd of capacity offline in May, but the IEA noted outages in Nigeria, Libya, Venezuela and Kuwait, plus falling U.S. shale output, have also eaten into global output.
The build in global inventories of crude oil is expected to slow to just 200,000 bpd in the second half of this year, from 1.3 million bpd in the first half, the IEA said.
Benchmark Brent crude prices LCOc1 have risen by 30 percent since the start of the year to above $45 a barrel, their highest since late 2015, buoyed by the extent of unexpected production outages around the world.
But prices have risen only about 12 percent, or $5, in the last month, when such interruptions spread more widely, mainly because of the billions of barrels of unused crude and refined products in tanks around the world.
“Further oil price rises … are likely to be limited by brimming crude oil and products stocks that will remain a feature of the market until more normal levels of inventory are reached,” the IEA said.
OPEC supply, led by increases in Iran, Iraq and the United Arab Emirates, pushed the group’s output up 330,000 bpd in April to a seven-year high of 32.76 million bpd, the agency said.
The IEA added that Saudi oilfields could ramp up towards 11 million bpd “without strain”, from current levels of around 10.2 million bpd.
Iran, which returned to global markets in January after the lifting of international sanctions linked to its nuclear activities, increased production and exports more quickly than expected, the IEA said.
Production reached some 3.56 million bpd, up 300,000 bpd and the highest since late 2011, prior to the introduction of sanctions, the IEA said.
Loadings of Iranian crude rose by 600,000 bpd in April to around 2 million barrels, the IEA said, adding that it was unclear how much of this oil had been drawn from onshore storage at the Kharg Island hub.