IEA sees oil market oversupplied in 2019

IEA sees oil market oversupplied in 2019

At a meeting two weeks ago in Vienna, OPEC countries and other oil producers such as Russian Federation agreed to prolong by nine months daily output cuts aimed at supporting prices and soaking up excess supplies.

The International Energy Agency (IEA) expects the return of an oversupplied oil market next year, despite the recent rollover of an OPEC-led pact created to restrain any glut.

The IEA said that markets were concerned by escalating tension between Iran and the West over oil tankers leaving the Gulf but that incidents in the region's shipping lanes have been overshadowed by supply concerns. But supply is now well in excess of demand, said the Paris-based institution that provides advice to oil-consuming nations. "The net result was a -7.226mb reduction to the major product categories which helped spur a more than 4% rally on Wednesday, the day the report was released".

OPEC also said its oil output in June fell by 68,000 barrels per day (bpd) to 29.83 million bpd, above the 2020 demand forecast, suggesting that there will be a 2020 supply surplus of over 500,000 bpd if OPEC keeps pumping at June's rate. "Clearly, market tightness is not an issue for the time being and any re-balancing seems to have moved further into the future", the IEA said.

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On July 2, OPEC producers and several non-OPEC producers (OPEC+) extended production cuts announced in December 2018 through the end of the first quarter of 2020.

"Clearly, this presents a major challenge to those who have taken on the task of market management", it added while referring to the OPEC (Organization of the Petroleum Exporting Countries) and allies like Russian Federation.

Going forward, the IEA said it forecast a supply overhang for 2020 as well, on the back of rising supply from non-OPEC producers. "European demand is sluggish; growth in India vanished in April and May due to a slowdown in [liquefied petroleum gas] deliveries and weakness in the aviation sector; and in the USA demand for both gasoline and diesel in the first half of 2019 is lower year-on-year". Any slowdown in global economic growth will put the brakes on demand for oil.

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