Categories: General Market Commentary
Topics: General Market Commentary

OPEC Deal to Create Oil-Supply Deficit Next Half, IEA Says

OPEC Deal to Create Oil-Supply Deficit Next Half, IEA Says

-- Stockpiles to shrink by 600,000 barrels a day as producers cut
-- Russia to gradually implement the reduction pledged on Dec. 10

Global oil markets will swing from surplus to deficit in the first half of 2017 as OPEC and other producers follow through on an agreement to cut supply, according to the International Energy Agency.

Oil stockpiles will decline by about 600,000 barrels a day in the next six months as curbs by OPEC and its partners take effect, said the agency, which had previously assumed inventories wouldn’t drop until the end of 2017. Russia, the biggest producer outside OPEC to join the deal, will gradually implement the full reduction it promised, according to the IEA.

Oil has gained about 17 percent since the Organization of Petroleum Exporting Countries agreed on Nov. 30 to trim output for the first time in eight years, an accord expanded on Dec. 10 with the participation of 11 non-members including Russia and Kazakhstan.

“Before the agreement among producers, our demand and supply numbers suggested that the market would re-balance by the end of 2017,” the Paris-based agency said in its monthly market report. “If OPEC promptly and fully sticks to its production target” and other producers cut as agreed, “the market is likely to move into deficit in the first half of 2017.”

The stockpile declines will only occur if OPEC reduces supply enough to meet and maintain a target of about 32.7 million barrels a day, the agency said. The organization pumped a record 34.2 million a day in November, making the cut required to reach its target even bigger, according to the IEA, which advises 29 nations on energy policy.

“The move into deficit in the market comes with a big ‘if’,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. “A number of moving parts will have to come together before this happens. In the end, the proof is in the pudding.”

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