The rebalancing of the oil market that started last year has yet to run its course and a bottom in prices “may still be ahead”, according to the world’s leading energy forecaster.
In a bearish assessment of market conditions the International Energy Agency said the adjustment process would “extend well into 2016” as production — led by OPEC nations — continued to swell and demand growth softened.
The Paris-based agency, which advises the world’s biggest economies on energy policy, said the oil market was “massively oversupplied”.
Global oil supply surged by 550,000 barrels a day in June to 96.6m b/d, up 3.1m b/d from the same month a year ago, the IEA said in a widely followed monthly report.
“The market’s ability to absorb that oversupply is unlikely to last. Onshore storage space is limited. So is the tanker fleet. New refineries do not get built every day,” the IEA said. “Something has to give.”
That something could be US shale oil, the agency said. Relentless supply growth from North America has been one of the factors contributing to the glut in crude oil.
While some weakness in US shale oil output was beginning to show “it may also take another price drop for the full supply response to unfold”, the IEA warned.
Oil prices on both sides of the Atlantic fell sharply this week, with Brent crude — the international benchmark — entering bear market territory. Brent hit $55 a barrel on Monday, rattled by the financial turmoil in Greece and the stock market rout in China.
On Friday, Brent had risen back to $59 a barrel — a level that is still almost 50 per cent lower than last year’s $115 a barrel June peak.
Cost savings, efficiency gains and hedging have helped shale producers “defy expectations” until now, but supply growth ground to a halt in May and is forecast to stay at these levels through mid-2016, the IEA noted.
After growing at 1.7m b/d in 2014, US shale onshore production is forecast to slow to 900,000 b/d this year and 300,000 b/d in 2016.
As a whole, the IEA expects non-Opec supply growth will slow to 1m b/d in 2015 and stay flat in 2016 as lower oil prices and spending cuts take hold.
