The global oil market will move into deficit as soon as the first half of 2017 if Opec and countries outside the cartel successfully execute the global supply pact agreed in recent days.
The International Energy Agency, the Paris-based global energy advisory body, said in its monthly report that the planned output cuts could lead to demand outstripping supply by as much as 600,000 barrels a day.
“If Opec promptly and fully sticks to its production target, assessed at 32.7m b/d, and non-OPEC producers deliver the agreed cuts of 558,000 b/d outlined on 10 December, then the market is likely to move into deficit in the first half of 2017 by an estimated 0.6 mb/d.”
The IEA’s closely watched monthly report is the first major assessment of the oil market’s supply demand balance since Opec first agreed to reduce production on November 30.
Previously the agency had forecast the oil market would not move into deficit until the second half of 2017 at the earliest, with the prospect of the market remaining in surplus for a fourth straight year.
The price of Brent Crude, the international oil benchmark, has risen above $57 for the first time since July 2015 after Opec won the support of countries outside its cartel for its planned supply cuts.
Russia, alongside 10 other countries including Mexico, Oman and Azerbaijan agreed to reduce their production by 558,000 barrels a day on Saturday.
The agreement, coming on top of Opec’s earlier promise to curb output by more than 1m barrels a day, has helped Brent to climb a further 5 per cent on Monday morning, to $57.06 per barrel.
The international benchmark has now rallied more than 22 per cent in the last three weeks.
WTI, the US benchmark, is also up 5.2 per cent this morning to $54.21 per barrel, its highest level since October 2015.
Oil-rich OPEC and non-OPEC countries struck a historic deal on Saturday for the latter to reduce oil output by around 600,000 barrels per day in the wake of the November 30 OPEC Vienna agreement to cut production by 1.2 million barrels per day. The summary cut amounts to some 1.8 million barrels per day in the first half of 2017. The deal finalized a preliminary agreement reached in Algeria in September.
“I want to state with full certainty that we will significantly reduce output, starting in January, in order to ensure an output level below what we agreed to on November 30,” Al-Falih said after the deal was closed. The minister added that Saudi Arabia had already informed its clients of the plans to cut output.
A group of 13 countries from outside OPEC agreed to cut output by 562,000 barrels per day. That’s just shy of the rumoured 600K barrels from earlier on Saturday but still represents a major win for OPEC and oil bulls; at least if the promises are kept.
Mexico, Kazakhstan, Oman and Russia were all part of the group. The cut adds to the pledged 1.2 mbpd reduction in OPEC quotas announced last week.
Skeptics say that many in the group were facing natural productions declines as fields dry up. Compliance will be critical and there are tremendous levels of distrust in the group.
The other countries who have joined in are:
Azerbaijan, Bahrain, Bolivia, Brunei, Equatorial Guinea, Malaysia, Sudan and South Sudan.