The International Energy Agency (IEA) has warned that the repercussions of the global oversupply of oil can persist until 2017, particularly due to the slow growth in global demand.
Slow Demand Growth
According to the latest monthly forecast report of the IEA, the growth in oil demand for 2016 is expected to come at around 1.30 million barrels per day (mbpd). This is down from a preceding forecast of 1.40 mbpd. The decline in the guidance is attributed to a slower growth during the third quarter. More specifically, poor oil demands in Asia and Europe have weighed on the data.
For 2017, the IEA expects demand to decrease further. Given the heightened uncertainty in the economy, growth in global demand for oil is expected at 1.20 mbpd next year.
Oil Glut Woes
Global oil glut has been a persisting problem since mid-2014, leading to the significant decline in oil prices. This has been made worse by the current downtrend in global oil demand. Oil prices are already down by more than 50% since the oil glut broke out two years ago.
The Organization of the Petroleum Exporting Countries (OPEC) is also of little help to the growing concern since it has not yet moved to cut oil production rate. The OPEC has been focused on maintaining a strong position in the industry despite the worsening oversupply. Consequently, oil producers and exporters inside the OPEC have been forced to cut oil prices instead. However, this has led OPEC companies to see massive declines in their respective revenues.
According to the IEA, the production rate of OPEC has jumped by about 0.20 mbpd to 33.47 mbpd last month. Later this month, the OPEC and other oil-producing nations outside the OPEC will meet to discuss whether a production rate cut must be called for or not.
Nonetheless, amid the prospective production rate cut, the IEA has reiterated that the dynamics of heightened supply and poor demand are not likely to change in the next few months. The IEA has maintained that the oversupply is likely to last at least until the first half of next year.