IEA sees global oil supply tightening more quickly in 2019

Marcus Newton
December 19, 2018

OPEC said on Wednesday it had offset a drop in sanctions-hit Iranian oil exports and lowered the 2019 forecast of demand for its crude, underlining the challenge the producer group faces to prevent a glut even after last week's decision to trim output.

"A cut of 2.5 percent from October levels for all bar Iran, Libya, Venezuela and Qatar looks closer to a 700,000-bpd cut", said Fyfe, although he still sees the agreement as enough to support prices.

Supply cuts that began in 2017 by OPEC and its allies had previously erased an inventory overhang that weighed on prices.

The IEA noted that Brent crude, the worldwide benchmark, appears to have found a floor at around $60 a barrel, far below the $86 a barrel price in early October.

"Time will tell how effective the new production agreement will be in re-balancing the oil market", the IEA said.

Crude oil prices remained steady today after the Energy Information Administration confirmed an API estimate of a crude oil inventory draw but a much smaller one than API's 10.18 million barrels. The agency expects Brent to average $61 a barrel next year while West Texas Intermediate (WTI) crude, the USA benchmark price, is now forecast to average $54 a barrel in 2019.

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OPEC and its partners chose to extend its production cuts till the end of 2018 in Vienna on November 30, as the oil cartel and its allies stepup their attempt to end a three-year supply glut that has savaged crude prices and the global energy industry.

The oil price has fallen by almost a third so far this quarter to around $61 a barrel, from a four-year peak close to $87 in early October.

Oil remains sideways as energy traders await a decline in USA or OPEC production.

Oil prices rose on Thursday, buoyed by a drawdown in USA crude inventories and signs that China is taking more concrete steps to put a trade war truce with Washington into action. Considering the positive correlation between API and EIA reports, the market is likely to keep crude oil supported before the EIA report. That was the first weekly decline since October, analysts at the Sevens Report wrote in a newsletter Thursday, but they noted that given a change in the way the EIA reports production, in increments of 100,000 as opposed to exact estimates, "the decline could have been a rounding error". This follows a 7.3 million barrel decline in the previous week.

Brent crude LCOc1 was down 30 cents at $59.85 per barrel by 1425 GMT.

Oil prices regularly overshoot the level needed to balance demand and supply.

Other reports by MaliBehiribAe

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