Opec’s rivals to drive glut in 2018, IEA says

US, Brazil, Canada and other producers outside energy bloc to increase output next year by the most in four years

New oil supplies from Opec’s rivals will be more than enough to meet growth in demand next year, the International Energy Agency said in its first forecast for 2018, an indication the cartel may need to extend production cuts further.

The US, Brazil, Canada and other producers outside the Organisation of Petroleum Exporting Countries will increase output next year by the most in four years, the IEA said.

So while the cutbacks should reduce the world’s bloated oil inventories to average levels by the time they’re scheduled to end next spring, demand for Opec crude won’t be high enough for the group to reverse the curbs without seeing stockpiles rise again. “Our first outlook for 2018 makes sobering reading for those producers looking to restrain supply,” said the Paris-based IEA, which advises most of the world’s major economies on energy policy.

Oil prices have slipped 14 per cent in New York this year as hopes that supply curbs by Opec and partners such as Russia would end a three-year surplus have given way to concern that the cuts aren’t deep enough and that US shale drillers will fill any shortfall. Oil prices fell by over two per cent yesterday, with Brent crude trading falling to $47.34 by 3pm GMT.

Demand growth acceleration

Global oil demand growth will accelerate next year to 1.4 million barrels a day, or 1.5 per cent, led by economic expansion in China and India. Demand will surpass 100 million barrels a day for the first time in the fourth quarter of 2018.

Still, supplies outside Opec will grow even faster, by almost 1.5 million barrels a day, with about half the expansion coming from US crude production.

The nation’s shale-oil explorers have emerged more efficient from the oil market’s three-year slump. The last time non-Opec supply growth exceeded the increase in demand was 2014, when oil prices slumped 46 per cent. As a result, demand for Opec’s crude next year will be about 200,000 barrels a day lower than this year, at 32.6 million barrels a day.

US shale is coming perilously close to puncturing its own rally. Just months after predicting double-digit production increases, largely based on crude prices sitting between $55 and $60 (Dh202 and Dh220) a barrel, drillers are suddenly contemplating the possibility of retrenchment as a stubborn global supply glut is keeping prices near $46.

It’s a reversal that could accomplish what the Organisation of Petroleum Exporting Countries (Opec) and other global producers have failed to do this year: slow down America’s booming shale industry.

Halting rig growth

Analysts and company officials say a drop to $40 a barrel could halt rig growth for smaller drillers in less active US shale basins, and undercut efforts by fracking service providers such as Halliburton Co, FTS International and Patterson-UTI Energy Inc to raise their fees.

The market got yet another bearish bump Tuesday as West Texas Intermediate oil, the US benchmark, dipped below $46 a barrel on an industry report showing an unexpected boost for US crude stockpiles.

Inventories rose by 2.75 million barrels last week, according to an American Petroleum Institute report Tuesday, people familiar with the data said.