Bloomberg

(Bloomberg) -- The world’s most prominent oil forecaster, the International Energy Agency, anticipates near-equilibrium between supply and demand in global crude markets next year. If OPEC members can’t resolve some massive output disruptions, that will turn into a significant shortfall.

World oil production in 2017 will very nearly match consumption, ending several years of oversupply, the Paris-based IEA forecast on June 14. For that to happen, the Organization of Petroleum Exporting Countries would have to pump an extra 650,000 barrels a day over the year, according to Bloomberg calculations based on IEA data. That would require solutions to militant attacks in Nigeria, deep political divisions in Libya or an economic crisis in Venezuela.

"The IEA is highly optimistic in its assumption of elevated OPEC supplies next year," said Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd. in London. "Even though many view outages in Libya and Nigeria as unplanned, we would argue they are partly symptomatic of low oil prices and unlikely to be resolved any time soon."

The supply and demand forecasts from the IEA, which advises 29 nations on energy policy, are important because they shape trading. The oil price has been on a roller coaster since 2014, with a global surplus driving prices down 75 percent to a 12-year low of about $28 a barrel in January, only to rebound to almost $50 amid supply disruptions and unprecedented investment cuts.

Million Barrels

By the end of next year, OPEC will need to pump nearly 1 million barrels above last month’s production level to keep the market in balance, according to Bloomberg calculations based on IEA data. The agency doesn’t publish the OPEC production level it assumes to calculate its balances and its press office declined to provide the figures or comment on the basis for its assumptions.

Fulfilling the IEA’s forecast would require OPEC to overcome some major hurdles. In Nigeria, oil production has slumped to a 28-year low of 1.37 million barrels a day -- about 480,000 below its full capacity, IEA data show. A militant group calling itself the Niger Delta Avengers has been targeting pipelines and other infrastructure in the African nation for several months.

Libyan output remains just a fraction of the 1.6 million barrels a day pumped before the toppling of Moammar Qaddafi in 2011. The nation pumped 270,000 barrels a day in May, a decrease of 80,000 from the previous month as a dispute between rival governments in the west and east halted tanker loading at the port of Hariga for several weeks. Many of the country’s oil fields and export terminals are in the hands of armed groups with competing interests.

State of Crisis

In Venezuela, a severe economic crisis brought about by the slump in oil prices is making it difficult for the state oil company to pay its contractors for work necessary to sustain output, the IEA said. Output last month was 2.29 million barrels a day, the lowest since 2009, and the Latin American nation is on track for a drop of 100,000 barrels a day this year, it said.

Some additional output could be provided by Iran, which is restoring exports after nuclear-related sanctions were lifted in January. The Persian Gulf nation will boost output to more than 3.7 million barrels a day next year, having pumped at a five-year high of 3.6 million in May, according to the IEA. Saudi Arabia, the world’s biggest exporter, could also increase output during the summer months to cover an increase in domestic demand, it said.

After two years of oversupply, the world’s most industrialized countries have more than 3 billion barrels of oil in storage. This “enormous inventory overhang” dampens the prospects of “a significant increase in prices,” according to the IEA.

The agency estimates that inventories will decline very slightly in 2017, by an average of 100,000 barrels a day over the year. That narrow shortfall assumes OPEC will pump 33.3 million barrels of crude a day, compared with the organization’s May output of 32.6 million a day.

If OPEC output falls short of IEA estimates, those stockpiles would start shrink rapidly, according to Bloomberg calculations.

“Without the return of Libya, it will be difficult for OPEC to meet the call for 2017,” said Olivier Jakob, managing director at consultants Petromatrix GmbH in Zug, Switzerland. “That should lead to more structural stock draws in 2017.”

To contact the reporters on this story: Javier Blas in London at jblas3@bloomberg.net, Julian Lee in London at jlee1627@bloomberg.net, Grant Smith in London at gsmith52@bloomberg.net. To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Carlos Caminada

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