The global oil surplus in the first half of this year will probably be smaller than previously estimated because of robust demand in India and other emerging nations, the International Energy Agency said.
Supply will exceed demand by an average of 1.3 million barrels a day in the first six months of 2016, down from the 1.5 million projected a month ago, following surprisingly strong consumption in the first quarter, the Paris-based adviser said in a report. Still, further gains in oil prices “are likely to be limited by brimming crude and products stocks,” it predicted.
“Changes to the data in this month’s report confirm the direction of travel of the oil markets towards balance,” said the agency, which advises 29 of the most industrialized nations on energy policy. “The global supply surplus of oil will shrink dramatically later this year.”
The diminished glut indicates that OPEC’s policy, driven by de facto leader Saudi Arabia, to let lower crude prices re-balance world markets is taking effect. Oil futures closed at a six-month high above $46 a barrel in New York on Wednesday as supplies were tightened by declining U.S. drilling, wildfires in Canada and disruptions in Nigeria.
The IEA boosted its forecast for world oil demand this year by 100,000 barrels a day to 95.9 million a day. The rate of growth from 2015, at 1.2 million barrels a day, is unchanged from last month’s report. The agency, which said in March it might lower global oil demand forecasts, may need to increase them further, according to Wednesday’s report.
Strength in the first quarter was driven by China, Russia and by transport fuel use in India, which is “taking over from China as the main growth market for oil.”
Production from the Organization of Petroleum Exporting Countries reached its highest level since 2008 as Iran restored output previously constrained by international sanctions.
Iran pumped 3.56 million barrels a day in April, the most since November 2011 when international sanctions related to its nuclear program started to tighten, the agency said. Together with increased supplies from Iraq and the United Arab Emirates, that made up for disruptions in Kuwait and Nigeria, pushing the group’s total to 32.76 million barrels a day.
OPEC is pumping about 500,000 barrels a day more than the average required for this year, the report showed.
The IEA deepened its estimate for the 2016 decline in non-OPEC supply by 100,000 barrels a day, after wildfires in Canada halted some of the nation’s oil sands output. Non-OPEC output will drop by 800,000 barrels a day this year to 56.8 million a day as lower prices slash drilling activity by U.S. shale producers.
Oil stockpiles in developed nations declined in February for the first time in a year and slipped again in March, curbing their excess versus the seasonal average.