Published: Wed, November 15, 2017
Markets | By Terence Owen

Oil steady, tempered by caution over rising USA output

Oil steady, tempered by caution over rising USA output

"Using a scenario whereby current levels of Opec [Organisation of the Petroleum Exporting Countries] production are maintained, the oil market faces a hard challenge in 1Q18 with supply expected to exceed demand by 0.6m bpd followed by another, smaller, surplus of 0.2m bpd in 2Q18".

The IEA said oil production will be driven by continued growth in energy-hungry industries.

Reducing the use of fossil fuels is a key demand from activists and many governments taking part in the global climate talks in Bonn, Germany, this week. And the IEA expects non-OPEC countries to boost output by 1.4 million barrels a day next year, doubling this year's production growth.

Having said that, the IEA points out that over the next 25 years, the world's growing energy needs will be met first by renewables and natural gas "as fast-declining costs turn solar power into the cheapest source of new energy electricity generation". Next year, demand is seen hitting 98.9 million bpd, up 1.3 million bpd from this year.

Oil prices have risen in recent months, after both Opec and non-Opec countries struck a landmark deal at the end of past year to cut back production to combat a global oil glut.

"Over the same period, U.S. gas companies ramped up their exports to Canada and Mexico, pushing net USA imports of pipeline gas down to around 25 bcm in 2016, compared with 80 bcm some ten years earlier", IEA economists said. But analysts expect the price to not rise much further in coming months as the United States ramps up production.

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Fitch Ratings said in its 2018 oil outlook that it assumed 2018 "average oil prices will be broadly unchanged year-on-year and that the recent price recovery with Brent exceeding $60 per barrel may not be sustained".

Chris Watling, CEO and chief market strategist at Longview Economics, was quoted as saying that the adoption of EVs could lead to global peak oil demand as soon as 2023, which will result in oil prices crashing to $10.

With big gains forecast in its output of shale oil, the United States is expected to become a net oil exporter by the mid-2020s, the IEA said, adding that the USA will account for 80 per cent of the increase in the global oil supply to 2025, which will maintain near-term downward pressure on prices.

The International Energy Agency on Tuesday delivered a more cautious outlook for oil demand.

Echoing the forecast by IEA, the Organisation of the Petroleum Exporting Countries said after long years of punishingly low oil prices, there is "increasing evidence" that the oil market is moving closer to reaching a healthy balance between supply and demand.

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