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The International Energy Agency (IEA) is predicting the return of a glut in the oil market in 2020, as OPEC expects demand for its crude to drop while its competitors increase production.
In the first half of this year, the supply of oil exceeded global demand by 0.9 million barrels per day (bpd), and “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 International Energy Agency said late last week in a report. As a result, the agency is expecting another oversupplied market despite OPEC’s best attempts to restrict output.
This year, OPEC+ (OPEC plus its allies, including Russia) has held back 1.2 million bpd from the market. They extended their agreement on curbing output last week in order to prevent inventory surpluses that could affect the price of oil.
“The widely-anticipated decision by OPEC+ ministers to extend their output agreement to March 2020… does not change the fundamental outlook of an oversupplied market,” the IEA stated.
On Friday, the agency said it expects a 2.1 million bpd expansion of the oil supply from non-OPEC nations next year – a slight jump from this year – thanks in large part to the rapid increase in US production. The IEA said the likely drop in demand for OPEC’s crude oil in early 2020 could result in the alliance’s production dipping to 28 million bpd – the lowest since 2003.
OPEC also stated in a monthly report issued on Thursday that it expects global demand for its crude oil to drop in 2020 as non-OPEC nations increase production. The organization’s forecast for next year sees global demand at 29.27 million bpd of crude from OPEC nations, a decline of 1.34 million bpd from 2019.
The decline in demand for OPEC’s crude comes as the organization’s limits on output have provided a boost to the US, among other rival producers. The US has become the world’s largest crude oil producer in recent months, passing both Russia and Saudi Arabia.
Brent crude was up around 0.7 percent, trading at just below $67, on Friday morning. West Texas Intermediate (WTI) was up around 0.5 percent, just over $60. Brent slid by 10 percent in June due to worries that global demand is declining, according to the IEA.