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London — The extension of oil production cuts by OPEC and its partners has not changed the "fundamental outlook" of an oversupplied market, the International Energy Agency said Friday.

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In its monthly oil market report, the IEA lowered the "call" on OPEC, or its expectation of the need for OPEC crude, to just 28 million b/d in the first quarter of 2020. It noted OPEC production had not fallen that low since the third quarter of 2003, and the group faced a battle to retain market share. It estimated OPEC crude production had fallen by 90,000 b/d in June to 29.9 million b/d, with falls led by Angola, Iran and Iraq.

The projected call for Q1 2020 is 2.6 million b/d lower than its estimate for the current quarter, although it also foresees a partial recovery subsequently, to an average of 29.1 million b/d next year.

The IEA said OECD commercial oil stocks had risen by another 22.8 million barrels in May, remaining above the five-year average, as they have throughout the year. Consequently, this month's decision by OPEC and its partners, led by Russia, to extend production cuts to March 2020 "provides guidance but it does not change the fundamental outlook of an oversupplied market," the IEA said.

In the first half of 2019, oil supply exceeded demand by 900,000 b/d, adding to "huge" stock builds in the second half of last year, the IEA noted. "Clearly, market tightness is not an issue for the time being and any rebalancing seems to have moved further into the future," it said.

On recent geopolitical tensions in the Persian Gulf and fears for security of shipping, "the oil price impact has been minimal, with no real security of supply premium," it said.


The IEA left in place its annual demand growth projections for 2019 and 2020. Downward historical revisions mean it now expects quarterly oil demand to surpass the 100 million b/d mark for the first time in the current quarter. A year ago the IEA foresaw that milestone occurring in the fourth quarter 2018.

The agency offered some comfort to producers as it now projects a year-on-year rise in demand of 1.8 million b/d in the second half of this year following exceptionally weak growth in the first half -- noticeably in India and Saudi Arabia. It also lowered its estimate of non-OPEC supply growth in 2020 to 2.1 million b/d, from 2.3 million b/d in last month's report, but this reflects assumed restraint by Russia and Oman, rather than any change in its view of US shale.

The projection of a demand surge in the second half of this year reflects general economic improvement, lower oil prices, and increasing petrochemical capacity in China, Malaysia and the US, the IEA said. A switch away from high-sulfur fuel oil in shipping under new International Maritime Organization rules is also set to boost European demand, it noted.

Nonetheless, the IEA echoed OPEC's own warnings, in a report issued Thursday, about the cartel's diminishing market share, mainly at the hands of countries outside the Vienna group, notably the US.

For the past four months, OPEC and its partners have cut by more than the agreed 1.2 million b/d, while Iran lost a further 500,000 b/d due to US sanctions, yet in the same period global oil production rose by 500,000 b/d, the IEA said.

"Excluding Venezuela and Iran ... OPEC's market share has fallen from a recent peak of 36.7% in September 2016 to 34.5% currently," it said.

-- Nick Coleman,

-- Edited by James Burgess,