LONDON (ICIS)--A potential agreement by OPEC members to extend an oil supply cut deal may be offset by increasing US crude oil production and rising production in Libya and Nigeria, the International Energy Agency (IEA) said on Tuesday.
But the Paris-based agency said in its monthly report the rebalancing of the oil market via a draw in stocks is accelerating in the second quarter of 2017.
Crude futures have rallied since Monday, after Saudi Arabian and Russian officials agreed on the need to extend production cuts until the end of March 2018. The extension will be discussed at the next official OPEC meeting in Vienna, Austria on 25 May.
The IEA was cautious over whether ICE Brent futures prices will remain at their current higher levels.
“It remains to be seen whether this newfound optimism on the part of traders will stay,” the group said.
In the US, the IEA revised its supply expectation for 2017 higher to 790,000 bbl/day higher than 2016 – 100,000 bbl/day higher than its previous month’s forecast.
“Such is the diversity and dynamism of the US shale sector that our numbers are likely to be a moving target as 2017 progresses,” the report said.
The IEA said compliance with supply cuts by OPEC and 11 other non-OPEC countries has been strong, but production could be rising in Libya and Nigeria.
Libyan production reached 800,000 bbl/day in May, according to the agency’s preliminary data. This is the highest level since 2014.
OPEC output rose to 31.78m bbl/day in April, up by 65,000 bbl/day.
The agency lowered its outlook for global oil demand for 2017 to 97.9m bbl/day – 1.3m bbl/day higher than last year, which will continue 2016 and 2015’s decelerating trend.
The main lower demand drivers were slowdowns in Germany, Turkey and India in the first quarter, and the US in the second quarter of 2017.
Meanwhile, Chinese coal-to-liquids (CTL) projects are likely to lift non-conventional oil supply, the IEA said.
The Shenhua Ningxia Coal Industry started up the world’s largest CTL facility in China to-date in December 2016. The plant is able to make a profit at an oil price of $40/bbl due to its low mining costs, the agency said.
Beijing has also set new national targets for converting coal into gas and oil products, which could be the start of new project approvals in the region.