IEA says strong oil demand growth helping market rebalance

World oil demand will grow more than expected this year, which will help ease a global glut, the International Energy Agency ( IEA) said last Friday.

The agency raised its 2017 demand growth forecast to 1.5 million barrels per day ( bpd) from 1.4 million bpd in its previous monthly report and said that it expected demand to expand by a further 1.4 million bpd next year.

“Producers should find encouragement from demand, which is growing year- on- year more strongly than first thought,” said the Parisbased IEA, which advises industrialized nations on energy policy.

“There would be more confidence that rebalancing is here to stay if some producers party to the output agreements were not, just as they are gaining the upper hand, showing signs of weakening their resolve,” the IEA said.

The Organization of the Petroleum Exporting Countries ( OPEC) is curbing output by about 1.2 million bpd, while Russia and other non-OPEC producers are cutting a further 600,000 bpd until March 2018 to help support oil prices.

The IEA said OPEC’s compliance with the cuts in July had fallen to 75 percent, the lowest since the cuts began in January.

It cited weak compliance by Algeria, Iraq and the United Arab Emirates. In addition, OPEC member Libya, which is currently exempt from the output cuts, steeply increased output.

As a result, the overall global oil supply rose by 520,000 bpd in July to stand 500,000 bpd above year- ago levels.

Adding to the challenges of oil producers to support oil prices is rising non- OPEC output, which is expected to expand by 0.7 million bpd in 2017 and by 1.4 million bpd in 2018 on strong gains in the US.

Still, strong global demand growth is helping to clear excess barrels with the IEA registering a decline in stocks in industrialized nations in both June and July.

Stocks remain 219 million barrels above a 5- year average – a level that OPEC is targeting with its output cuts.

The IEA also revised historic demand data for 2015- 16 for developing countries, cutting it by 0.2 million bpd to 0.4 million bpd.

As a result of those historic revisions, the IEA cut baseline demand figures for 2017- 18 by around 0.3 million bpd to 0.4 million bpd and hence lowered demand for OPEC crude by the same amount.