Despite OPEC’s efforts to reduce the global oil supply glut, new production from the cartel’s rivals will more than meet growth in demand next year, the International Energy Agency (IEA) says in a new report.
“For total non-OPEC production, we expect production to grow by 700,000 barrels per day this year, but our first outlook for 2018 makes sobering reading for those producers looking to restrain supply,” the IEA notes in the Wednesday (June 14) report.
The news sent oil prices to a five-week low. Brent crude futures were down $1.67, or 3.4 percent, at $47.05 a barrel, while US West Texas Intermediate crude fell $1.66, or 3.6 percent, to $44.80.
According to the IEA, non-OPEC supply will increase by almost 1.5 million barrels a day in 2018, with about half of the expansion coming from US crude production.
The “outlook for US oil supplies has materially changed since the start of the year,” the IEA says. “Not only are producers increasing spending more sharply than initially thought, the pace and duration of new rig additions and drilling activity has exceeded all expectations.”
Brazil, Canada, the UK, Kazakhstan, Ghana and the Democratic Republic of Congo will also increase their output significantly in 2018, the report notes. Meanwhile, global demand for crude will only jump by 1.4 million barrels a day, led by economic expansion in China and India.
The last time non-OPEC supply growth exceeded the increase in demand was 2014, when oil prices slumped 46 percent.
In May, OPEC and 11 other major producers, including Russia, agreed to extend their deal to curb production until April 1. They estimated that nine more months at the current level of production would help end oversupply in the market.
While those supply reductions should eventually succeed, progress is much slower than expected, the IEA explains. “We have regularly counselled that patience is required on the part of those looking for the rebalancing of the oil market, and new data leads us to repeat the message in this Report,” the organization says.
“‘Whatever it takes’ might be [OPEC’s] mantra, but the current form of ‘whatever’ is not having as quick an impact as expected.”
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.