The Strategist

IEA: oil reserves are declining while demand is growing

09/13/2017 - 14:43

The surplus of oil in the world market is declining due to higher than expected demand in Europe and the US, as well as lower production in OPEC and outside the cartel, the International Energy Agency (IEA) said.

The agency raised assessment of the growth in oil demand in 2017 from 1.5 million to 1.6 million barrels per day (b/d), Reuters reports.

"The growth in demand in OECD countries remains stronger than expected, especially in Europe and the US," the IEA said. "Based on recent rates made by investors, it is expected that the excess in the market will decline and prices will rise, albeit very slowly".

High demand in industrialized countries was a key factor in the growth of global demand for 2.3 million b/d in the II quarter, which was the largest quarterly growth in annual terms since mid-2015.

World oil production in August decreased by 0.72 million b/d due to unplanned shutdowns and scheduled technical work at the fields in Libya, Russia, Kazakhstan, Azerbaijan and Mexico, and also in the North Sea. This is the first reduction in world production in four months.

OPEC oil production in August fell for the first time in five months, mainly due to Libya. Production in the cartel member countries fell by 0.21 million b/d to 32.67 million b/d.

12 OPEC members, bound by the agreement on production reduction, increased the level of compliance with the terms of the deal to 82% in August from 75% in July. Since the beginning of the year, they have fulfilled their obligations to reduce production by 86%.

According to the IEA, declining production and increasing demand are exhausting world oil reserves.

"Commercial inventories in the OECD countries did not change in July, remaining at the level of 3.016 billion barrels, while they usually grow during this period," the IEA noted. "Oil stocks in OECD countries at the end of July were only 35 million barrels higher than the average for five years".

In the meantime, the oil freeze agreement between the OPEC countries and non-oil producers is "most likely" will continue to operate after March 2018, Venezuelan President Nicolas Maduro said.

Maduro told that he discussed this issue with his Iranian counterpart Hassan Rouhani. He also noted that the opportunities for extending the agreement "are very favorable," Reuters writes.

"The meeting of ministers will take place in Vienna on September 20; the conditions for consolidation of this agreement are inviting, taking into account production and regulation of the market," Maduro said. "The agreement is likely to be extended."

At the end of last year, OPEC and other major producers, including Russia, agreed to cut oil production by a total of almost 1.8 million barrels per day (b d/d) to help restore market balance and support oil prices. In May, they agreed to extend the agreement until March 2018.

According to independent sources, 14 OPEC members in August produced 32.755 million b/d. The production dropped by 79.1 thousand b/d relative to July.

OPEC is still exceeding the established quota (32.5 million b/d) even without taking into account production in Equatorial Guinea, which joined the cartel at a meeting in May.