Crude markets have clawed their way back from a post-Brexit-vote slump, even as the Organization of Petroleum Exporting Countries predicted at least six more months of pain before it can declare victory in its war of attrition against non-OPEC producers.
After falling nearly $5 since the United Kingdom voted to leave the European Union last month, oil prices rebounded sharply on Tuesday, with West Texas Intermediate gaining more than $2 (U.S.) to $46.80 (U.S.) as traders focused on improving fundamentals and on covering short positions.
"The more time that goes by that we don't have a major catastrophe because of the exodus of Great Britain from the euro zone, the more the worries about the shock to the global economy are starting to wear off," said Gene McGillian, an analyst at Tradition Energy in Stamford, Conn.
However, Mr. McGillian said he does not expect the market to sustain prices above $50 (U.S.) a barrel for the foreseeable future as crude stocks remain swollen and OPEC's biggest producers continue to pump at near-record levels.
In its monthly oil market report, the producers' organization said it expects demand growth to continue at a relatively robust 1.2 million barrels a day in 2016 and 2017, while non-OPEC supply is forecast to fall by 110,000 barrels a day (b/d) next year.
"The contraction seen this year in non-OPEC supply is expected to continue in 2017 but at a slower pace," the monthly report said. "Market conditions will help remove overall excess oil stocks in 2017."
In an outlook released on Tuesday, the U.S. Energy Information Administration said U.S. crude production was 8.6 million b/d, about 1.1 million b/d lower than the peak in April, 2015. Production is forecast to average 8.6 million b/d this year and 8.2 million b/d in 2017.
Despite the decline in American supply, the global market remains awash in crude. "While [OPEC's] outlook is bullish for this quarter, it is hard to put enough lipstick on this pig to see a substantial increase in process until late 2017," energy economist Jim Williams of WTRG Economics Inc. said in a note.
Saudi Arabia raised its output to 10.55 million b/d in June, just short of the record 10.56 million in June last year, OPEC said. Still, temporary outages in Canada, Nigeria and Libya and declining production in the United States boosted demand for crude from the rest of the OPEC producers.
Given its long lead times in planning for oil sands projects, Canada is due to be among the top growth countries outside OPEC, adding 150,000 b/d next year. With a queue of unfinished projects still in the works, the Canadian Association of Petroleum Producers has forecast that oil-sands producers will add 850,000 b/d of supply between now and 2021.