Global oil markets will remain oversupplied through 2016 as demand growth slows and OPEC producers keep their taps wide open, the International Energy Agency said on Friday.
The Paris-based agency delivered more bad news to battered oil producers, who have seen prices slump below $40 (U.S.) per barrel and hit their lowest point since the deep global recession of 2008-09.
"Global inventories are set to keep building at least until late 2016, but at a much slower pace than observed this year," the IEA said.
The agency's executive director, Fatih Birol, said this week that he expected prices to remain under pressure throughout next year. "I think 2016 will be a year where we will have a lower price environment," he told The Globe and Mail on the sidelines of the Paris climate summit.
Despite a year of depressed prices, global oil output in November had grown to 1.8 million barrels per day above levels since in November, 2014, when the Organization of Petroleum Exporting Countries (OPEC) rattled markets by refusing to cut production to cope with an oversupplied market.
Most of that growth came from OPEC producers, notably Saudi Arabia, which is battling to reclaim and defend market share from competitors as diverse as U.S. shale producers, Canadian oil sands and Middle East rivals Iran and Iraq.
While non-OPEC supply remains stubbornly high this year, the IEA forecasts that it will decline by 600,000 barrels per day in 2016, as U.S. shale producers slash investment. "As companies make further spending cuts in reaction to sub-$50/bbl oil, the impact on supplies – both from non-OPEC and OPEC – will be even more pronounced in the longer term," it said.
Producers are counting on global consumers to ratchet up demand for crude as they take advantage of low retail prices for gasoline and diesel. But there too, the IEA forecast is discouraging for them, at least in the short term.
While demand grew at the quickest pace in five years in the third quarter, rising 2.2 million barrels per day, the agency says that growth is decelerating. For 2016, it expects consumption to grow by 1.2 million barrels a day, not nearly enough to sop up the excess in production and reduce inventories.