LONDON – Oil prices are set to come under further pressure from easing global demand and an expanding glut of crude while a rebalancing of the markets may last well into next year, the West's energy watchdog said on Friday.
The International Energy Agency (IEA) said it expected global demand to slow next year to 1.2 million barrels per day from 1.4 million this year — far less than needed to balance stubbornly growing non-OPEC and OPEC supply.
"The bottom of the market may still be ahead," the IEA said in its monthly report.
"The rebalancing that began when oil markets set off on an initial 60 percent price drop a year ago has yet to run its course. Recent developments suggest that the process will extend well into 2016."
"The oil market was massively oversupplied in the second quarter of 2015, and remains so today. It is equally clear that the market's ability to absorb that oversupply is unlikely to last. Onshore storage space is limited. So is the tanker fleet," the report said.
The global glut arose from a steep spike in U.S. oil supply on the back of the shale revolution and OPEC's decision not to reduce output. But the fall in prices to $50-$60 per barrel from as high as $115 a year ago has yet to depress North American supply.
"The expected timing of the rebalancing has shifted a bit, but the story line has not changed. The supply response to lower prices is on the way," the IEA said, adding it may take another price drop for a full supply response to unfold.
U.S. supply grew by 1 million barrels per day in the first five months of 2015, down from 1.8 million in 2014, according to the IEA.
"Total U.S. supply will keep growing through 2016, but much more slowly than in 2014, and thanks to natural gas liquids and new deepwater plays rather than onshore crude supply," it said.
Non-OPEC supply as a whole, after expanding by a massive 2.4 million barrels per day in 2014, looks on track to slow to growth of 1 million barrels per day in 2015 and stay flat in 2016, the IEA said.