The International Energy Agency forecasts a tightening supply/demand balance that could drive the price of crude oil higher into 2019.
The Brent crude oil price fell from just above $79 per barrel at the end of June to below $72/bbl in early August amid a healthy global crude oil supply that was up 300,000 barrels per day in July to 99.4 MMbbl/d, which was 1.1 MMbbl/d above the year-ago level, according to the IEA's latest Oil Market Report.
The agency attributed the supply gains to increased production as OPEC crude oil output was steady in July at 32.18 MMbbl/d amid an unexpected decline in Saudi Arabian supply that was offset by higher production from the United Arab Emirates, Kuwait and Nigeria. Further, commercial stocks in the Organization for Economic Co-operation and Development, or OECD, at the end of the second quarter were up 6.6 MMbbl/d versus the end of the first quarter, and outside the OECD, inventories were also mostly higher during the quarter, the IEA said.
The agency warned, however, that there is a downside risk to supply from geopolitical uncertainties and said escalating trade disputes increase the risk to supply.
Taking note of the IEA's findings, Bernstein analysts said in an Aug. 10 note that supply in the second half will be largely dependent on the balance between supply disruptions in Iran and Venezuela and production increases in Saudi Arabia, the UAE and Kuwait.
These risks could drive higher prices and thus impact demand growth into 2019, the IEA said.
For 2018, the agency expects global demand growth to hold steady at 1.4 MMbbl/d. For 2019, the IEA sees growth accelerating slightly to 1.5 MMbbl/d, with the possibility of lower supply if escalating trade tensions lead to slower economic growth and, in turn, lower oil demand.
The Bernstein analysts said the outlook for supply and demand over the next six months has tightened, but they expect a market undersupply of 0.7 MMbbl/d in the second half, which will lead to a 120-MMbbl decline in global inventories that should support crude oil prices in the near term.