The global oil surplus is beginning to shrink due to stronger-than-expected European and U.S. demand growth, as well as production declines in OPEC and non-OPEC countries, the International Energy Agency (IEA) said Sept. 13.
The Paris-based agency, which coordinates energy policies of industrial nations, raised its 2017 global oil demand growth estimate to 1.6 million barrels per day (bbl/d) from 1.5 million bbl/d.
"OECD demand growth continues to be stronger than expected, particularly in Europe and the U.S.," the IEA said. "Based on recent bets made by investors, expectations are that markets are tightening and that prices will rise, albeit very modestly."
Robust demand in industrialized countries was a key factor behind global demand growing 2.3 million bbl/d in the second quarter, the highest quarterly year-on-year rise since mid-2015.
On the supply side, global oil output fell by 0.72 million bbl/d in August due to unplanned outages and scheduled maintenance in OPEC member Libya as well as non-OPEC states such as Russia, Kazakhstan, Azerbaijan and Mexico, as well as in the North Sea.
It was the first fall in global production in four months.
OPEC's crude output fell in August for the first time in five months on renewed turmoil in Libya, with the cartel's production decreasing by 0.21 million bbl/d to 32.67 million bbl/d.
The 12 members of OPEC bound by a supply-cutting pact raised their compliance to 82% in August from 75% in July. Their compliance for the year so far was 86%.
As a result of output declines and stronger demand, global oil stocks are beginning to rebalance, according to the IEA.
"OECD commercial stocks were unchanged in July at 3.016 billion bbl, when they normally increase," the IEA said.
The global surplus of crude and stocks over the five-year average fell to 190 million bbl.
OPEC cut its output in January 2017 by 1.8 million bbl/d to help inventories return to a five-year average and prop up prices.
"OECD product stocks were only 35 million bbl above the five-year average at end-July," the IEA said.
"Depending on the pace of recovery for the U.S. refining industry post-Harvey, very soon OECD product stocks could fall to, or even below, the five-year level," it said referring to Hurricane Harvey which hit the U.S. two weeks ago.
With ongoing rebalancing, the IEA raised its call on OPEC's oil by 0.1 million bbl/d for both 2017 and 2018.
For this year, the IEA sees the need for OPEC crude at 32.7 million bbl/d, in line with the current production. For 2018, the world will need 32.4 million bbl/d of crude from OPEC.
The IEA also said the impact from Hurricane Harvey on U.S. oil markets in the Gulf Coast was easing and its impact on global markets was likely to be relatively short-lived, although it would possibly help inventories rebalance more quickly.
The IEA revised down the global refinery throughput forecast for the third quarter of 2017 by 0.7 million bbl/d due to Harvey.
"This results in global refined product undersupply for the second consecutive quarter," the IEA said.
Longer term, the U.S. should strengthen its energy security to address events, such as hurricanes, by potentially adding oil products to government-held inventories, the IEA said.
"With U.S. export volumes expected to increase, the strategic importance of the Gulf Coast will only grow. The rise of the Gulf Coast as a major energy hub means that, in some respects, it can be compared to the Strait of Hormuz in that normal operations are too important to fail," the IEA said.