By Ejiofor Alike
The International Energy Agency (IEA) has predicted that the outcome of yesterday’s meeting in Doha, Qatar, between the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC to freeze oil production would have limited impact on physical supply, stressing that the oil markets are unlikely to rebalance before 2017.
In an unprecedented show of solidarity against the slump in crude oil prices, OPEC and non-OPEC producers met yesterday to reach a global agreement to freeze oil output, so as to stabilise prices.
From as high as $115 per barrel in June 2014, oil collapsed to $27 per barrel in January this year due to increasing oil supplies from OPEC and non-OPEC members.
However, prices have recovered to above $40 per barrel in recent weeks following an announcement that major OPEC and non-OPEC producers are due to meet today to reach a deal to freeze global production.
But in its latest monthly report, IEA, the energy advisor to 26 industrialised countries, said if there were to “be a production freeze, rather than a cut, the impact on physical oil supplies will be limited.”
The report acknowledged that part of the recent support for prices arose from expectations of the meeting of leading oil producers, which held in Doha, Qatar, on 17 April, 2016.
“We cannot know the outcome but if there is to be a production freeze, rather than a cut, the impact on physical oil supplies will be limited,” said the report.
“With Saudi Arabia and Russia already producing at or near record rates and very little upside seen apart from Iran any deal struck will not materially impact the global supply-demand balance during the first half of 2016,” the IEA said.
According to IEA, within the group of non-OPEC producers, there are few areas of growth with only a handful of countries likely to increase production this year, unless Russia, which has surprised us all with continued growth in production, does not carry out its professed support for a production freeze.
As crude oil production exceeded demand, the world had built record stocks over the past year, in excess of 3 billion barrels, and he IEA had predicted that the stocks would grow by 1.5 million bpd in the first half of 2016, slowing to 0.2 million bpd in the second half – unchanged from last month.
IEA also trimmed its estimates for 2016 global demand growth from last month to 1.16 million barrels per day, representing a significant decline from the very strong growth of 1.8 million bpd in 2015 on the back of low oil prices.
The IEA noted that demand growth is slowing in China, the United States and much of Europe, stressing that with an estimated demand growth of 300,000 barrels per day, India could replace China as the next destination for global crude.
“India could be replacing China as the main engine of global demand growth,” the IEA said.
“Reforms to the rules allowing refiners to directly import crude oil are all part of a general trend towards liberalisation that should underpin India’s growth momentum,” IEA added.