World oil markets are looking for continued cooperation by OPEC member countries to hold crude oil inventories stable in order to minimize price volatility into 2019 as demand, steadied by higher oil prices in 2018, begins to rise anew, the International Energy Agency said.
In its monthly Oil Market Report, the IEA held its 2018 demand growth estimate at 1.4 million barrels per day as strong growth in the first and second quarters due to colder weather in the northern hemisphere is countered by slower growth in the second half amid high prices.
After relative balance in the oil markets in the first half, the outlook for the second half depends entirely on what OPEC decides to do when members meet in Vienna on June 22, Bernstein analysts said in a June 13 note.
The Bernstein analysts said the market "remains on a knife-edge in the run up to the OPEC meeting at the end of the month."
Concerns surround supply balance as OPEC looks to Saudi Arabia, Iraq and Algeria to increase flows to offset a fall in production in Nigeria and Venezuela, the IEA said.
The IEA report shows global oil supply up 276,000 barrels per day in May to 98.7 MMbbl/d. Non-OPEC countries added 2.2 MMbbl/d year over year, and OPEC added 50,000 bbl/d to 31.69 MMbbl/d.
OPEC supply notched modest gains even as member production collectively fell 50,000 bbl/d due to temporal issues in Nigeria and structural issues in Angola and Venezuela along with weakness elsewhere, Tudor Pickering Holt & Company analysts said in a June 13 note.
Bernstein said Saudi Arabia and Russia have started to increase supply ahead of the meeting. IEA data shows Russian compliance with OPEC remained flat at 83% month on month pumping 11.35 MMbbl/d, while OPEC in its own monthly report said Saudi Arabia increased its output 161,000 bbl/d to a monthly total just over 10 MMbbl/d.
Tudor Pickering analysts expect Saudi Arabia and Russia to favor cooperation with the group, albeit at higher production levels. Outside of OPEC however, the IEA is forecasting non-OPEC supply to slow marginally from about 2.0 MMbbl/d in 2018 to 1.7 MMbbl/d in 2019.
The U.S. leads in supply growth, making up about 75% of the total gains across 2018 and 2019, the IEA said, but expansion is at risk as takeaway capacity lags output growth.
With the IEA forecasting 1.4 MMbbl/d world oil demand growth in 2019 amid solid economics and an assumption of more stable prices, the Tudor Pickering analysts said it is imperative that Saudi Arabia and other OPEC members compensate for declining supply from Iran and Venezuela.
"If Saudi and other OPEC members do not compensate for declining Iranian and Venezuelan barrels, the market would be pushed in a deficit of close to 1 MMbbl/d." Tudor Pickering analysts said. "This would result in a sharp draw in inventories through 2018 and 2019 and push oil prices higher."