LONDON (ICIS)--Crude oil price increases in past months have stalled as non-OPEC producers, mainly the US, continue to pump out product and global supply is likely to outpace demand in 2018, the International Energy Agency (IEA) said on Tuesday.
However, demand is also set to increase this year. The IEA said that the International Monetary Fund’s (IMF) growth projections for the global economy, revised upwards in January, had prompted it to increase its own crude oil demand projection to 1.4m bbl/day on average.
Crude oil stocks in OECD countries, a key measure of the market’s oversupply, had posted an “extraordinarily rapid fall” as the global economy gathered pace at the end of 2017.
While crude oil prices for the international referential Brent surpassed the $70/bbl barrier in January, they fell back again in February.
In European trading on Monday, Brent futures closed at $63.18/bbl – for deliveries in April – and the US reference crude West Texas Intermediate (WTI) for deliveries in March was trading at $59.79/bbl.
“For now, the upward momentum that drove the price of Brent crude oil to $70/bbl has stalled; partly due to investors taking profits, but also as part of the corrections we have seen recently in many markets. Most importantly, the underlying oil market fundamentals in the early part of 2018 look less supportive for prices,” said the IEA.
OECD stocks currently stand at 52m bbl in excess of the historic average, compared to 264m above a year ago, the Paris-based agency said.
The OPEC and non-OPEC countries who agreed to freeze or cut output in December 2016 considered stocks in the 35-strong developed countries crude oil stocks as the measure of their success.
“With the surplus having shrunk so dramatically, the success of the output agreement might be close to hand. This, however, is not necessarily the case: oil price rises have come to a halt and gone into reverse, and, according to our supply/demand balance, so might the decline in oil stocks, at least in the early part of this year,” said the IEA.
The crude oil market is clearly moving away from the traditional Middle East centre ground, as the US continues to increase its production.
The IEA said that in the three months to November 2017, crude output increased “by a colossal” 846,000 bbl/day, forecasting that the US’ output will soon overtake that of Saudi Arabia.
“By the end of this year, it might also overtake Russia to become the global leader. All the indicators that suggest continued fast growth in the US are in perfect alignment; rising prices leading, after a few months, to more drilling, more completions, more production, and more hedging,” the IEA said.
“In early 2018, the situation is reminiscent of the first wave of US shale growth that, riding the tide of high oil prices in the early years of this decade, made big gains in terms of market share and eventually in 2014 forced a historic change of policy by leading producers.”
The latter scenario will come across as a “sobering thought” for competing producers to the US who are currently out of production awaiting better times, although those stoppages in production would confront them with a renewed challenge to their market share, the agency added.
“Another sobering thought is that it is not just a matter of production: trade patterns are changing. Recently we read of a shipment of condensate from the US to the UAE. Such a development would have seemed incredible a few years ago, now it looks like the shape of things to come.
“As a result, prices could be maintained at recent levels even as US production rises. If so, most producers will be happy, but if not, history might be repeating itself.”
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