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The oil market is likely to stay well supplied in the near term with oil stocks growing in the first half of 2020 despite deeper production cuts from the OPEC alliance and a sharp slowdown around US supply growth. the International Energy Agency said Thursday.
The IEA`s latest monthly report predicts non-OPEC oil supply growth accelerating to 2.1 million b d this year from 2 million b d in 2019. noting the composition of what makes up this extra crude coming on to the market will change dramatically.
`The US contribution slumps to 52% versus 84% on average over 2017-2019. Significant gains will come from Norway. Brazil. Canada. Australia and Guyana.` the IEA said.
This means the call on OPEC crude falls to 28.5 million b d during the first six months of the year compared with December production of 29.44 million b d.
This comes a month after the OPEC+ producer group that includes OPEC and Russia decided to reduce output further from 1.2 million b d to 1.7 million b d from January through March 2020. with an extra 400.000 b d coming from a voluntary additional contribution from Saudi Arabia.
`Even if they adhere strictly to the cuts. there is still likely to be a strong build in inventories during the first half of 2020. OPEC crude production would fall to 29.3 million b d in January if there were to be full compliance and steady output from Libya. Iran and Venezuela.` the IEA said.
The Paris-based agency said OPEC crude oil production in December is below the group`s new 2020 target even before it is officially implemented. `Taking into account Saudi Arabia`s voluntary cut means that the OPEC-10 bloc need to cut a further 70.000 b d from January.` with all eyes on Iraq as OPEC`s second biggest producer and one that has yet to fall in line.
Saudi Arabia cut crude production to 9.68 million b d from 9.88 million b d in November. suggesting compliance of near to 300%. while Iraq by contrast cut output to 4.59 million b d in December from 4.65 million b d. pointing to conformity of just 45%. according to the IEA.
Insulation
The IEA added that the fact that the oil market is well supplied has helped insulate it from recent geopolitical unrest in the Middle East and helps guard against changes in marine fuel regulations that came into effect at the start of the year that means refiners have to supply cleaner shipping fuels.
`Today`s market where non-OPEC production is rising strongly and OECD stocks are 9 million barrels above the five-year average. provides a solid base from which to react to any escalation in geopolitical tension. As a back-up resource. the value of strategic stocks has once again been confirmed.` it said.
The International Maritime Organization`s new marine fuel regulations came into effect on January 1. `Although there are initial local difficulties as might be expected from such a complex global change. ship operators. products suppliers and ports have so far coped well.` the IEA said.
Steady Demand
The IEA kept its 2020 oil demand prediction unchanged. forecasting growth of 1.2 million b d. helped by prices remaining relatively subdued. higher global GDP growth than last year and by progress in settling trade disputes.
`The US-Japan trade agreement. the US-Mexico-Canada agreement and the phase one trade agreement between China and the US should support growth.` the IEA said.
China`s promise Wednesday to increase its energy purchases from the US by $52.4 billion over the next two years could spur more commercial activity for American liquefaction projects. but much will depend on the fate of existing LNG tariffs.
The signing in Washington of the Phase 1 trade deal between China and the US amounts to a thawing of tensions that may once again allow key energy products. including LNG. to flow more freely between the countries. No US cargoes have been delivered to China since March 2019.
