Last Friday capped a couple of very happening weeks for the international oil market. After the much-talked about Opec World Oil Outlook report earlier in the month, another much sought report that of International Energy Agency (IEA) came out, which by and large reads very similar to the findings of the Opec report. What is now a given in the oil world – is that the balance is still some way off.
The IEA report has maintained that Opec and its allies face a major challenge next year as the crude demand is expected to dwindle sharply, as against that from the rival producers, outside the Opec ambit. Similar fears were echoed in the Opec report earlier, which had predicted extended pressure on Opec production growth, especially in the wake of ever-growing US shale oil production.
What has made matters trickier is the rather weak demand growth outlook, which did not change in the recent report. That in itself is a rarity, given sharp adjustments in almost all recent reports. Opec production is estimated at 30.2 million barrels per day in the fourth quarter of 2019, which the EIA believes is 2 million barrels per day more than what will be needed.
“The hefty supply cushion that is likely to build up during the first half of next year will offer cold comfort to OPEC+ ministers gathering in Vienna at the start of next month,” the IEA has pointed in the report. While the US supply continues to grow, the pace of growth has slowed down. But this does not mean the non-Opec oil production growth is slowing anytime soon, as the IEA sees significant contributions from the likes of Guyana, Norway and Brazil.
All eyes are now on Opec’s next month meeting, which will initiate discussions on the future of oil production freeze from ember and allied countries. While going for deeper cuts maybe too farfetched at this juncture, the possibility of the leaders Saudi Arabia and Russia, asking for higher compliance from other contributors, cannot be entirely ruled out. Given the hype around the Saudi Aramco IPO, the Kingdom would preferably opt for whatever it takes to keep the international crude oil prices, at favorable levels, to help support the multibillion dollar offering.