Global oil stocks are likely to fall by 300,000 b/d on average this year,
but a likely global oversupply in the first quarter of 2018 underlines the
need for continued OPEC discipline on supply cuts, the International Energy
Agency said Thursday.

The IEA’s latest monthly oil market report pointed to a likely increase
in global oil stocks in Q1 2018 of up to 800,000 b/d, assuming stable OPEC
production and normal weather, following continued reductions in stocks and
volumes in transit both in the OECD and elsewhere in 2017.

Underlining its point, it estimated the “call” on OPEC, or the likely
need for OPEC crude, will drop by 1.1 million b/d in Q1 next year compared
with Q4 2017 to just 31.9 million b/d.

However, despite the expected Q1 oversupply, globally for 2018 as a
whole, “crude and product markets look broadly balanced,” it said.

As for this year, “detailed analysis of the global balance shows that in
2017 each quarter will show a deficit, other than a tiny build in Q1 2017.

For the year as a whole, stocks will fall by 300,000 b/d,” the IEA said.

The IEA closely monitors oil stocks in the OECD countries, while the
numbers for the rest of the world are less clear estimates.

Besides OECD stocks, “we can now clearly see a major reduction in
floating storage, oil in transit, and stocks held in some independent areas,”
the IEA said.

The report said OECD oil stocks had continued falling against the
five-year average in August, to reach 170 million barrels above the five-year
average, although the total remained above the 3 billion mark, at 3.015
billion barrels.

Global oil stocks are likely to have fallen in Q3 for just the second
time since oil prices started collapsing in 2014, it added.

“Draws in the OECD and in floating storage have more than compensated for
the net stock builds occurring in China,” the IEA said, adding that Chinese
year-on-year demand growth had slowed to 310,000 b/d in August, from 490,000
b/d in July.

A global surge in oil demand growth in Q2 of this year, mounting to 2.2
million b/d year-on-year, appears to have slowed, with a slowdown occurring in
both OECD and non-OECD countries in August, it said.

On the effect of this year’s severe hurricanes in the Gulf of Mexico, the
IEA estimated that US oil demand had fallen by 40,000 b/d on the year in Q3
but was likely to return to more normal levels in the current quarter.

OPEC DISCIPLINE

On the supply side, the IEA estimated OPEC’s compliance with its agreed
supply cuts at 88% in September, up from 86% in August.

It put OPEC’s September crude production at 32.65 million b/d, down
400,000 b/d on the year, and slightly lower than an estimate this week from
OPEC itself, based on secondary sources, of 32.75 million b/d.

It said that next year’s projected oil demand growth of 1.4 million b/d,
is below its estimate for non-OPEC supply growth in 2018, which is 1.5 million
b/d, necessitating continued compliance with last year’s production cut
agreement between OPEC and non-OPEC countries led by Russia.

The IEA calculated that last year’s cut agreement had resulted in higher
oil earnings for OPEC as a whole in the course of this year.

However, exempt countries Libya and Nigeria had received half of the
increase in revenue, while Saudi Arabia slightly lost out in the year to
September, with a $3 million a day reduction compared with its earnings in Q4
last year.

The IEA estimated Libya’s crude production at 920,000 b/d in September,
but said it could struggle to reach the 1 million b/d level achieved in July
due to continued civil strife.

Compliance among non-OPEC countries party to last year’s agreement was
75% in September, with Russian compliance on 78%, it estimated.

Russia’s oil output in September, at 10.91 million b/d, was lower than a
year earlier for the first time in over three years, it added.

Meanwhile China’s oil production fell to a new low of 3.7 million b/d in
August.

–Nick Coleman, nick.coleman@spglobal.com

–Edited by Jonathan Dart, jonathan.dart@spglobal.com

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