The International Energy Agency said Wednesday that the global oil glut will stretch into 2017 if OPEC fails to reach a production deal.
In its November oil market report, the IEA said that OPEC must agree to “significant cuts” at its next meeting or risk another year of growing oil inventories.
OPEC members proposed a plan earlier this year to cut production down to between 32.5 million to 33 million barrels per day (bpd).
However, the group has not yet decided how to allocate the cuts or disclosed any details about the plan.
OPEC production hit an all-time high of 33.8 million bpd in October thanks to recovering production in Libya and Nigeria along with record production in Iraq.
The IEA said that, if the proposed production cuts are implemented, the oil market should move from “surplus to deficit very quickly in 2017.”
However, the IEA added that even if a deal is agreed upon the “considerable stock overhang that will take time to deplete.”
The IEA said that if no agreement is reached and some OPEC members continue to grow production the market “will remain in surplus throughout” 2017 with “little prospect of oil prices rising significantly higher.”
OPEC will meet in Vienna on November 30.
Global oil supply rose by 800,000 bpd to 97.8 million bpd in October as both OPEC and non-OPEC producers opened up their taps, the IEA.
World oil output climbed by 800,000 bpd year-over-year in October, with higher OPEC supply offsetting non-OPEC declines.
The IEA expects non-OPEC production to rise by 500,000 bpd in 2017 thanks to growing production in Brazil, Canada and Kazakhstan, up from a 900,000 bpd decline forecast for 2016.
The IEA added that, if current supply levels persist in 2017, there is a risk that crude prices will begin declining.
On the demand side, the IEA said there is “little evidence” to suggest that economic activity is “sufficiently robust” to stimulate higher oil demand growth .
Oil demand growth is expected to ease to 1.2 million bpd in 2016 due to “sharp slowdowns in the OECD Americas and China,” the IEA said.
The IEA is forecasting a similar expansion level for 2017.
The IEA also found that any economic stimulus that low oil prices may have provided at the end of last year and earlier part of this year “is now in the past.”
OECD commercial stocks fell in September by 17.1 million barrels to 3.068 billion barrels, the second straight month of declines.
However, the IEA said that initial data points to renewed crude stock builds in the United States and Japan.
The agency warned that global oil stock builds could continue through 2017 if OPEC does not agree to production cuts at its upcoming meeting.
The agency said that the outlook for other factors impacting oil prices provide “little comfort” for investors.
Despite low oil prices, Russia has managed to sustain record production and is expected to add nearly 200,000 bpd next year.
“This means that 2017 could be another year of relentless global supply growth similar to that seen in 2016,” the IEA said.
The IEA also stressed the need for continued investment to ensure that the global oil market remains “close to balance” and that prices remain stable and “as fair for both producers and consumers as can ever be possible in such a dynamic industry.”