The International Energy Agency (IEA) has used its latest Oil Market Report (OMR) to speculate that the oil production cutbacks being undertaken by a group of 24 Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC nations is close to achieving its ultimate goal of significantly reducing global inventories.
The IEA’s report states: “The overall state of the cuts in March shows OPEC's compliance rate at 163% with its non-OPEC partners achieving a rate of 90%. With just under half of global oil supply subject to restraint and oil demand growing steadily, the impact on stocks has been substantial.”
It was assumed from the Vienna agreement in 2016 that the cartel seeking to rein in production wanted to see inventories fall to “normal” levels – widely assumed to mean in the region of five-year averages.
But the IEA now believes that the commitment to output reduction is close to hitting its target. The report continues, “With markets expected to tighten, it is possible that when we publish OECD (Organisation for Economic Co-operation and Development) stocks data in the next month or two they will have reached or even fallen below the five-year average target. It is not for us to declare on behalf of the Vienna agreement countries that it is ‘mission accomplished’, but if our outlook is accurate, it certainly looks very much like it.”
The OMR also predicts that US production in 2018 should grow by around 1.3mn barrels per day (bpd), while global demand will spike by around 1.5mn bpd.