IEA forecasts ‘roughly’ balanced oil market in 2018 with possible price ceiling

Falling global crude oil stockpiles in 2017 will help put the market “roughly” into balance in 2018, but an increase in prices could be limited, especially if the Organization of Petroleum Exporting Countries doesn’t stick to its agreement to curb output, the International Energy Agency said.

In its monthly Oil Market Report for October, IEA noted that recent upward momentum in crude prices was provided by uncertainty with suppliers such as Libya, Venezuela, Iran, and northern Iraq, signs of possibly slower-than-expected growth in US shale production, and strong oil demand, IEA explained.

Meanwhile, OPEC crude output was virtually unchanged in September at 32.65 million b/d, down 400,000 b/d year-over-year, as slightly higher supply from Libya and Iraq offset lower supply from Venezuela. Year-to-date compliance with the group’s agreement to curtail output by 1.2 million b/d is 86%.

Assuming OPEC production remains at that level, global crude stockpiles are slated to fall 300,000 b/d in 2017. While the data is subject to revision, IEA said it can “now clearly see a major reduction in floating storage, oil in transit, and stocks held in some independent areas.”

In the Organization for Economic Cooperation and Development, the 5-year average stock overhang is down to 170 million bbl from 318 million bbl at the end of January. Stocks have fallen in months when they normally increase, offsetting net builds in China, where crude imports have fallen every month since June, and the implied net build for stocks in September was relatively small at 100,000 b/d.

Based on unchanged OPEC output and normal weather conditions, IEA expects three of four quarters in 2018 to be “roughly balanced,” with a first-quarter stock build of 800,000 b/d.

But IEA projects oil demand and non-OPEC production in 2018 will grow by about the same volume, which could act as a ceiling for oil prices. Non-OPEC output is expected to increase 700,000 b/d in 2017 and 1.5 million b/d in 2018. Projected global demand growth remains at 1.6 million b/d in 2017 and 1.4 million b/d in 2018.

With OPEC members scheduled to meet in Vienna on Nov. 30, IEA notes the next few weeks “will be crucial in shaping their decision on output.” It added, “A lot has been achieved towards stabilizing the market, but to build on this success in 2018 will require continued discipline.”