The International Energy Agency said Tuesday that it expects the gap between global crude supply and demand to widen further this year as OPEC continues to ramp up production.
The IEA said in its February Oil Market Report that it expects global oil demand growth to “ease back considerably” this year to 1.2 million barrels per day, down from a five-year high of 1.6 million bpd in 2015.
The decline is primarily driven by slowing demand in Europe, China and the United States.
Assuming that OPEC production is flat, the agency expects an implied stock build of 2 million bpd in the first quarter of 2016 and a 1.5 million barrel per day build in the second quarter of 2016.
The IEA said that supply and demand data suggest more stock building during the second half of year with stocks expected to grow by 300,000 bpd.
“If these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term. In these conditions the short term risk to the downside has increased,” the IEA said.
While the U.S. rig count has fallen by more than half, the IEA said ” there is a lingering feeling that the big fall-off in production from US shale producers is taking an awful long time to happen” and added that “perhaps resilience still has some way to go.”
The agency is currently forecasting non-OPEC output to drop by 600,000 bpd to 57.1 million bpd in 2016.
Global oil supply fell by 200,000 bpd in January to 96.5 million bpd as higher OPEC output was only partially offset by a dip in non-OPEC production.
Non-OPEC supplies ticked down by 500,00 bpd from a month ago and now stand near levels seen a year ago, the IEA said.
OPEC crude output grew by 280,000 barrels per day in January to 32.63 million bpd as “Saudi Arabia, Iraq and a sanctions-free Iran all turned up the taps,” the IEA said.
Supplies from OPEC stood at nearly 1.7 million barrels above year ago levels at the end of January.
OECD commercial stocks grew counterseasonally by 7.6 million barrels in December and hit 3.012 billion barrels at the end of that month, or 350 million barrel above average levels.
Refined products covered 32.3 days of forward demand, 0.1 day above the level at the end of November, the report said.
The IEA said that preliminary information indicates that inventories have continued building into January.
Global refinery runs dropped by 1.3 million bpd to 79.8 million bpd in January as seasonal maintenance was undertaken in the United States and refinery margins curbed runs.
Global throughputs stood at more than 1.7 million bpd above year ago levels in January, with “particularly strong” gains in the United States and the Middle East, the IEA said.
Commenting on reports that OPEC members were discussing the possibility of collaborative production cuts with non-OPEC members, the IEA said the likelihood of coordinated cuts “is very low.”
“Persistent speculation about a deal between OPEC and leading non-OPEC producers to cut output appears to be just that: Speculation,” the IEA said.