Global oil supply could fall in line with demand more quickly if OPEC and Russia agree to a steep enough cut in production, but it is unclear how rapidly this might happen, the International Energy Agency said on Tuesday.
OPEC, led by Saudi Arabia, agreed last month to cut production to around 32.5 to 33 million barrels per day (bpd) and Russia has signaled it is ready to join in any effort to temper supply and shrink a stubborn global surplus of unwanted crude.
Oversupply helped send oil prices from $115 a barrel in June 2014 to as low as $27 in January this year. Crude has since recovered to around $50 on expectations of a production cut.
The IEA said in its August report it expected world oil demand to grow at a rate of 1.2 million bpd next year, keeping its forecast unchanged from last month, but cut its estimate of growth in 2016 by 40,000 bpd to around 1.2 million bpd, from around 1.3 million bpd last month.
“Even with tentative signs that bulging inventories are starting to decline, our supply-demand outlook suggests that the market — if left to its own devices — may remain in oversupply through the first half of next year,” the IEA said. “If OPEC sticks to its new target, the market’s rebalancing could come faster.”
“At this stage, it is difficult to assess how the OPEC supply cut, if enforced, will affect market balances,” the agency added.
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