The International Energy Agency said Tuesday that it now expects the oil market to re-balance in the second half of year thanks to strengthening demand growth.
In its June oil market report, the agency said that global oil stocks grew less than expected thanks to “significantly stronger” growth demand.
Global oil stock surplus now stands at about 800,000 barrels per day, significantly lower than the agency’s previous estimate of 1.5 million bpd.
Demand grew by 1.6 million bpd in the first quarter of 2016 compared to initial projections of 1.2 million bpd.
Strengthening demand growth prompted the agency to increase its full year 2016 demand growth estimate to 1.3 million bpd.
The agency said that it now sees the oil market balancing in the second half of 2016.
Assuming production trends hold steady, the agency projects a “small” stock draw in the third quarter of 2016 that will be offset by a small stock build in the fourth quarter.
OECD commercial inventories rose by 14.4 million barrels over March levels to stand at 3.065 billion barrels at the end of April.
Those additions marked a 222 million barrel gain over year-ago levels, the IEA said.
OECD gasoline stocks are also above average and year-ago levels both in terms of both absolute and days of forward demand, according to the report.
According to the IEA, outages in OPEC and non-OPEC countries reduced global oil supply by nearly 800,000 barrels per day last month.
A severe wildfire forced several projects in the oil-sands rich region of Fort McMurray, Alberta temporarily offline last month.
According to the U.S. Energy Information Administration, the fires disrupted an average of 800,000 bpd in May, with a daily peak disruption level of over 1.1 million bpd.
Militant attacks against several key Nigerian pipelines have also disrupted natural gas and crude output.
Those disruptions dragged total OPEC output down by 110,000 bpd in May and “more than offset” output gains in the Middle East, the agency said.
The IEA said that global crude output fell to 95.4 million bpd in May, the first significant drop since early 2013.
In May, the supply disruptions helped push average prices for both Brent and WTI futures up for the third straight month, the report said.
Brent crude prices touched highs of about $51 per barrel earlier this month before retreating back to about $49.52 per barrel early Tuesday morning.
The agency projects non-OPEC crude supply to drop by 900,000 bpd in 2016 and begin growing again in 2017 at a “modest” rate of 200,000 bpd.
Non-OPEC production is now projected to fall by 900,000 bpd in 2016, with a decline in U.S. shale output accounting for just over half of that drop.
The agency warned that, although the oil market seems to be balancing, strong demand growth seen earlier this year “might not be maintained.”
The agency added that large shut-in volumes in Nigeria and Libya could also come back online and bring more barrels to market.
The IEA now expects global oil demand growth to hold steady at 1.3 million barrels per day in 2017, with non-OPEC supply growing at about 200,000 bpd.
The agency said that, assuming OPEC production “grows modestly” in 2017, it expects global oil stocks to build “slightly” in the first half of 2017.
Global oil stocks are then expected to fall “slightly more” in the second half of next year.
The IEA currently projects a “very small” stock draw of 100,000 bpd for the full year of 2017.
“In any event, following three consecutive years of stock build at an average rate close to 1 mb/d there is an enormous inventory overhang to clear. This is likely to dampen prospects of a significant increase in oil prices,” the agency said.