The International Energy Agency (IEA) said on Tuesday that global oil inventories could shrink faster than initially expected after non-OPEC members agreed to cut production.
The IEA said that if OPEC “promptly and fully sticks to its production target,” and non-OPEC producers deliver on their cuts, the market “is likely to move into deficit in the first half of 2017” by an estimated 600,000 barrels per day.
However, the IEA warned that those figures are not a forecast but are an “assumption based on the numbers in OPEC’s November agreement, subsequently reinforced by the non-OPEC producers.”
The IEA said the OPEC production cut “almost matches its deliberate production increase” of 1.3 million bpd from October 2015 to October 2016.
Non-OPEC producers have seen their crude output fall by 900,000 barrels per day during the same period.
OPEC members agreed earlier this month to trim production by about 1.2 million bpd from October levels.
The IEA expects OPEC to produce about 32.7 million bpd after the cuts take effect on January 1.
A dozen non-OPEC producers, including Russia, agreed last week to trim their total production by 558,000 bpd.
OPEC said the reductions can either be done voluntarily or through managed decline, in accordance with an “accelerated schedule.”
Both the OPEC and non-OPEC deals will have an initial duration of six months.
The IEA warned that the six-month initial duration of the OPEC plan complicates its analysis for the second half of 2017.
The agency said that, given the underlying uncertainties in the oil market and the global economy, there is no guarantee that the production restraint will be extended.
“The price curve reflects this with a sharp increase in short-term prices but shows relatively little movement further out,” the IEA said.
The agency said that, for contractual and logistical reasons, the output cuts may not immediately “fall neatly into place.”
The IEA added that it will allow time for the cuts to be implemented before re-assessing its market outlook.
“Success means the reinforcement of prices and revenue stability for producers after two difficult years; failure risks starting a fourth year of stock builds and a possible return to lower prices,” the agency said.
The IEA revised its 2016 global net demand growth figure up to 1.4 million bpd compared to its previous forecast of about 1.2 million bpd.
The agency said that “robust” U.S. demand during the third quarter and methodological changes for China were the main factors behind the revision.
The agency boosted its 2017 global net demand growth forecast up to 1.3 million bpd, about 100,000 barrels above its previous forecast.
Global oil supplies edged up to a record high of 98.2 million bpd in November as a fall in non-OPEC output “was more than offset” by higher OPEC production.
OECD commercial inventories fell in October marking the third consecutive monthly decline.
OECD commercial inventories have declined by 75 million barrels after hitting a historical high in July.
However, OECD commercial inventories remain 300 million barrels above the five-year average.
Preliminary data collected by the IEA shows oil inventories falling further across the OECD in November.
Refinery crude intake for the first quarter of 2017 is forecast to grow “by only a modest” 310,000 year-over-year after rising by 350,000 in the fourth quarter of 2016.
“The rally in crude prices following the announcement of coordinated OPEC/non-OPEC action may further squeeze refining margins, prompting product stock draws first on the way to market re-balancing,” the IEA said.