Global oil demand will grow by the most in six years in 2016 while non-OPEC supply stalls, according to a monthly U.S. energy report on Oct. 6 that suggests a surplus of crude is easing more quickly than expected.
Total world supply is expected to rise to 95.98 million barrels a day (bbl/d) in 2016, 0.1% less than forecast last month, according to the U.S. Energy Information Administration's (EIA) Short Term Energy Outlook. Demand is expected to rise 270,000 bbl/d to 95.2 MMbbl/d, up 0.3% from September's forecast due in part to an outlook for stronger demand growth from China.
The tightening market balance comes as U.S. production starts to decline, although the EIA's latest forecasts suggest a smaller fall-off in annual output than previously expected. U.S. oil output is expected to fall from an average of 9.25 MMbbl/d in 2015 to 8.86 MMbbl/d in 2016, compared with 8.82 million expected in its previous report.
Oversupply of crude, due in part to surging U.S. shale production, caused prices to fall by more than 50% since June 2014.
"Non-OPEC growth dries up to almost nothing; the Saudi strategy is working," said Michael Wittner, an analyst at Societe Generale in New York, referring to Saudi Arabia's effort to keep production high to force less-efficient producers out of the market. "It is has never been about a couple of months or a couple of quarters, but a couple of years, and that is how it is playing out."
The agency is forecasting a global implied stock build of about 1.76 MMbbl/d this year, and 0.8 MMbbl/d next year. This suggests the huge oversupply that has forced prices sharply lower will recede slightly in 2016, with more rebalancing the following year.
Another question looming over oil markets has been whether demand from China is weakening. In the latest forecast, the EIA raised its outlook for 2016 Chinese demand to 11.48 MMbbl/d, compared with 11.41 million seen previously, and 11.18 million in 2015.
Recommended Reading
CERAWeek: Saudi Aramco CEO Says No Peak in Oil Demand for Some Time to Come
2024-03-18 - Reducing greenhouse gas emissions from hydrocarbons through carbon capture and other technologies achieves better results than alternative energies, Saudi Aramco CEO Amin Nasser said.
NAPE: CCUS is a Risky Venture Hinging on Tech, Regulation, Reservoirs
2024-02-14 - Transdisciplinary collaboration and reservoir understanding are key to mitigating CCUS risks.
Amid Climate Scaremongering, Energy Execs Urge Engagement, Realism
2024-02-06 - From shale boom to net zero goals, industry experts grappled with the contradictions facing the energy industry during SPE’s Hydraulic Fracturing Technology Conference.
RBC: Minerals, E&P Stocks Wooing Back Generalist Investors
2024-04-16 - Public mineral and royalty companies have performed well in the markets, and investors are taking notice. But experts say mineral and royalties stocks still have a long way to go to compete for generalist investor capital.
‘Growth Story’ for Oil: Rice's Kenneth Medlock on Demand Trends
2024-03-05 - Economics drive oil demand, not politics, Rice University’s Kenneth Medlock said during the International Drilling Conference and Exhibition in Galveston.