By Sebastine Obasi

The global oil market will show a surplus into next year, as an abrupt deterioration in demand growth meets rising supply, pushing world inventories to yet another record high while confounding the previous expectations of leading energy agencies.

File Photo: Crude Oil

International Energy Agency, IEA, had forecast global supply would outpace demand well into next year, marking a reversal of its assessment just one month ago which had indicated that the market would essentially show no surplus for the remainder of this year.

Similarly, a monthly report from the Organization of the Petroleum Exporting Countries, OPEC, showed that the world’s largest producers expect their non-OPEC rivals to pump even faster, suggesting a hefty surplus may be on the cards in 2017.

“Our forecast in this month’s report suggests that this supply-demand dynamic may not change significantly in the coming months. As a result, supply will continue to outpace demand at least through the first half of next year,” the IEA said.

According to IEA global refinery runs are expected to grow at their slowest pace in at least a decade this year, which will curb appetite for crude oil, just as inventories across the OECD rose to a fresh record high of 3.111 billion barrels.

“With our more pessimistic outlook for the second half of 2016 refining activity and revisions to crude supply, the expected draws in the third quarter of 2016 are now lower, while the build in the fourth quarter of 2016 is higher,” the IEA said.

Global demand growth is slowing at a faster pace than the group initially predicted. The IEA left its forecast for demand growth for 2017 unchanged from its prediction in June at 1.2 million barrels per day (mbpd), but cut its forecast for 2016 consumption growth to 1.3 mbpd, from 1.4 million.

“The key demand change in this report is the erosion of 300,000 bpd from the third quarter of 2016’s global demand estimate, and the resulting removal of 100,000 bpd from the net 2016 forecast,” the IEA said.

Despite oil price drops and resulting investment cuts, global oil production is still expanding, although nowhere near the breakneck pace of 2015. High-cost OPEC producers have been hit particularly hard by this development.

However, the loss has been more than made up for by OPEC. Saudi Arabia and Iran have each raised oil output by over 1 million barrels a day since late 2014 when OPEC shifted strategy to defend market share rather than price.

OPEC forecast demand for its oil will average 32.48 mbpd in 2017, down 530,000 bpd from its previous forecast.

“It seems the situation has deteriorated strongly in the eyes of OPEC as well as the IEA,” Commerzbank head of commodities strategy Eugen Weinberg said, adding, “we are in the third quarter of 2016 and we won’t see the ‘balancing-out’ over the next six months is definitely a major change”.