The International Energy Agency said on Tuesday that the oil market is still “under pressure” despite an OPEC production deal.
In its latest monthly oil market report, the agency said that rising OPEC production and weakening global economic conditions have caused a “massive oil inventory overhang that is keeping the market under pressure.”
The IEA’s current estimate shows that OPEC production rose to an all-time high of 33.6 million barrels per day in September as Iran boosted production and Libya reopened ports.
OPEC members agreed to cut the group’s total production down to between 32.5 million and 33 million barrels per day during an informal meeting earlier this month.
Iran, Nigeria and Libya are expected to be exempt from production cuts while larger producers such as Saudi Arabia will likely bear the brunt of the reduction.
Details about how many barrels each of the group’s 14 members will cut and when those cuts will go into effect have not been disclosed yet.
OPEC has also not disclosed if other producers, such as Russia, will cooperate with the cuts.
The IEA warned that larger OPEC members may be forced to make deeper production cuts to offset production boosts in Iran, Nigeria and Libya.
Although U.S. tight oil production has contracted, the agency found that Russian and OPEC production levels continue to show “impressive resilience.”
Global oil supply rose by 600,000 bpd in September, with non-OPEC supply climbing nearly 500,000 bpd on higher Russian and Kazakh flows.
OECD commercial inventories fell by 10 million barrels to 3.092 billion barrels in August, the first inventory decline since March.
The draw down was due to a “larger than seasonal decline in crude stockpiles,” the IEA said.
The agency’s preliminary data for September show crude stocks declining in Japan and the United States.
World oil output hit 97.2 million bpd in September, up 200,000 bpd year-over-year thanks to strong OPEC growth.
The IEA expects non-OPEC supply to drop by 900,000 bpd this year before climbing by 400,000 bpd in 2017.
The agency projects demand expanding by 1.2 million bpd this year, with a similar gain forecast for 2017.
Demand growth has continued to slow, falling from a five-year high in the third quarter of 2015 quarter to a four-year low in third quarter of 2016 due to “vanishing OECD growth and a marked deceleration in China,” the agency said.
“The potential for colder weather should see growth rebound somewhat in 4Q16,” the IEA said.
OPEC production gains coupled with slowing demand growth suggests the oil oversupply with remain until the first half of 2017, the agency said.
“Even with tentative signs that bulging inventories are starting to decline, our supply-demand outlook suggests that the market – if left to its own devices – may remain in oversupply through the first half of next year. If OPEC sticks to its new target, the market’s rebalancing could come faster,” the IEA said.