Oil output set to outpace demand in 2018: IEA

Oil surges

In light of ongoing developments, the Economist Intelligence Unit (EIU) has lowered its medium-term oil price forecast, covering 2018-21 to an annual average of $55.5 per barrel, from US$58.4 per barrel previously.

Crude futures had shed more than 40 cents in the first few hours of trading Wednesday in Asia, in response to a build in United States crude and gasoline inventories reported by the American Petroleum Institute for the week ended June 9.

While Iraq is among OPEC nations that pledged to restrict production to eliminate a global glut, there are signs that it may nonetheless be gaining a share of key import markets.

As a result, OPEC raised the expected demand for its crude this year by 100,000 bbl/d to 32.02 million bbl/d.

First, a little good news came to the market this week as the EIA reported a 1.7-million-barrel draw in inventories.

"We think this effectively takes September off the table", said Ian Lyngen, head of USA rates strategy at BMO Capital Markets in NY, in reference to the impact of the data on the probability of a September Fed rate increase.

But it said slowing demand growth in China and Europe in particular, as well as increasing supply, meant the deficit should narrow to 500,000 bpd from a prior estimate of 700,000.

The increase was largely because members that are exempt from the output cuts agreed in November, such as Libya and Nigeria, increased production after prior curtailments due to civil unrest.


The currency used to express re-balancing is the five-year average level of oil stocks.

As at the end of the first quarter, commercial inventories of oil in the OECD - as opposed to strategic stocks held by governments - had actually risen versus the end of December, despite supply cuts having begun during that period.

July gasoline RBN7, -4.11% was down 4.2% at $1.437 a gallon on the New York Mercantile Exchange, while July West Texas Intermediate crude CLN7, -3.64% lost 3.8% to $44.70 a barrel.

With those inventories now back above 3 billion barrels, even the extended schedule of cuts announced by OPEC last month looks inadequate.

Brent crude futures were at $48.25 per barrel at 0039 GMT, down 47 cents, or 1 per cent, from their last close.

Crude prices have fallen more than 10 per cent since late May, pulled down by heavy global oversupply that has persisted despite a move led by the Organization of the Petroleum Exporting Countries to curb production.

The decision by OPEC to extend oil production cutbacks until March 2018 was one of the most significant announcements this year, which is a remarkable indication of the serious commitment OPEC is undertaking in order to steady the rocking oil prices boat.

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