IEA’S oil market optimism offers hope

The projections of the International Energy Agency (IEA) that the global oil market will be almost balanced next year as demand continues to rise faster than production, while the current oversupply is much smaller than previously thought, echo the UAE’s position that current prices were not sustainable.
The surplus in the first half of this year is about 40 percent smaller than estimated a month ago, as consumption proves stronger than expected while disruptions reduce supply, the Paris-based agency said.
“I’m still optimistic that before the end of the year we will see some correction in the oil prices,”Suhail Al Mazrouei, the UAE Energy Minister, had said on the sidelines of World Future Energy Summit in Abu Dhabi, in January this year.
IEA, which advises 29 nations on energy policy, has drawn the conclusion that the global oil markets will balance out. “At halfway in 2016, the oil market looks to be balancing. Less oil has been stockpiled than we originally expected as oil demand growth has been significantly stronger and unexpected supply cuts strained the availability of crude.” “The UAE is always cooperating with OPEC and if there’s an unanimous decision to meet within the majority members in OPEC we will meet with non-OPEC members,” Al Mazrouei had pointed out.
Organization of the Petroleum Exporting Countries (OPEC) ditched its policy of propping up prices in 2014 in favour of protecting its market share, a move that pushed prices to a 2003 low. But members of the oil-producing trade bloc failed to agree at their last meeting in December on an output ceiling, allowing member states to pump at will.
OPEC has done little to correct the market’s imbalance, failing earlier to agree on any production ceiling at a key meeting and deciding instead to keep oil gushing as the moderate recovery in the oil price eased pressure to limit output.
Meanwhile, June report of the OPEC kept its global oil demand forecast for this year unchanged at 94.18 million barrels a day, up 1.2 million barrels from last year. But OPEC forecast that “the excess supply in the market is likely to ease over the coming quarters”.
The IEA report paints an optimistic scenario. It estimates that global oil demand will increase by 1.3 million barrels a day next year, the same rate as this year, to reach 97.4 million barrels a day.
As growth in demand exceeds non-OPEC supply, more crude will be required from OPEC. The organisation will need to provide an average of 33.5 million barrels a day next year, about 900,000 a day more than the 32.6 million a day its 13 members pumped in May, according to the report.
But the recent rise of oil to, more or less, $50 per barrel comes with challenges too. Oil extended declines from the lowest close in more than a week amid signs that crude near $50 is triggering resumption of drilling in the US and Canada. With hope, prices are rallying investors will pump more funds into the sector.
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Yet, there are other issues that need to be tackled. “What has changed is market sentiment,” Eugen Weinberg, a Commerzbank AG in Frankfurt, said in a report. “Weaker economic data from China and the approaching Brexit referendum have generated a noticeable rise in risk aversion. Oil prices are unable to ignore this negative market sentiment.” With rising demand and balanced supplies, the prices will be stable. India, Korea and Japan are among countries projected to see strong demand.