Oil markets will see another glut in 2020, IEA predicts
Fri, 12 Jul 2019 09:00

Oil markets will see another glut in 2020, IEA predicts

Fri, 12 Jul 2019 09:00

A worker on a an oil drill near New Town, North Dakota.

Oil markets will see another glut in 2020, IEA predicts

Daniel Acker | Bloomberg | Getty Images
The International Energy Agency (IEA) expects the return of an oversupplied oil market next year, despite the recent rollover of an OPEC-led pact designed to restrain any glut.

The energy agency said the "main message" of its closely-watched report was that oil supply in the first six months of 2019 had exceeded demand by 0.9 million barrels per day.
"This surplus adds to the huge stock builds seen in the second half of 2018 when oil production surged just as demand growth started to falter," the Paris-based IEA said Friday.

"Clearly, market tightness is not an issue for the time being and any re-balancing seems to have moved further into the future."

OPEC and its allies, led by Russia, have kept 1.2 million barrels per day off the market since the start of the year.

The energy alliance, sometimes referred to as OPEC+, last week renewed the pact until March 2020 to avoid a build-up of inventories that could hit prices.

"The widely-anticipated decision by OPEC+ ministers to extend their output agreement to March 2020 provides guidance but it does not change the fundamental outlook of an oversupplied market," the IEA said.
International benchmark Brent crude traded at around $67.00 Friday morning, up around 0.7%, while U.S. West Texas Intermediate (WTI) stood at $60.59, around 0.6% higher.

Concerns that global demand is slowing caused Brent to decline by 10% in June, despite supportive geopolitical factors, the IEA said.
OPEC vs. the U.S.
The energy agency said Friday that it expects a 2.1 million barrels per day expansion of non-OPEC oil supply next year, largely driven by soaring U.S. production. That would mark a slight increase from 2 million barrels per day in 2019, lowering the requirement of OPEC crude.

The IEA said an expected drop in demand for OPEC crude in the first three months of 2020 could see the groups production fall to 28 million barrels per day — its lowest level since the third quarter of 2003.

In a separate monthly report published by OPEC on Thursday, the 14-member group said it also expected world demand for its crude to fall next year as rivals ramp up production.

Giving its first 2020 forecasts in a monthly report, OPEC said the world would need 29.27 million barrels per day of crude from its 14 members in 2020, down 1.34 million barrels per day from this year.

An expected fall in demand for OPEC crude highlights the sustained boost its policy of supply cuts is giving to U.S. shale and other rivals. It potentially reinforces President Donald Trumps decision to impose sanctions on OPEC members Iran and Venezuela.

The U.S. has overtaken Saudi Arabia and Russia to become the worlds top producer this year.

Earlier this month, the head of EMEA oil and gas research at J.P. Morgan warned Saudi Arabia and OPEC would act to reclaim some of its market share from the U.S. before too long.

Global demand growth is expected to accelerate from an "exceptionally weak" 310,000 barrels per day in the first quarter of 2019 and 800,000 in the second quarter, to reach 1.8 million barrels per day in the whole of the second half of the year, the IEA said.

For 2020, the energy agency said the pace of growth would average 1.4 million barrels per day, compared to 1.2 million barrels per day this year.