The latest oil market report from the International Energy Agency (IEA) shows supply stocks are lowering, but compliance with output agreements is a concern.
The compliance rate with OPEC’s output cut fell again in July to a new low of 75% from June’s revised figure of 77%. For non-OPEC countries, the compliance rate in July was 67%.
“Together, the twenty-two countries are producing about [470,000 barrels per day] in excess of their commitment,” says the report.
On the demand side, growth is better than expected, but global demand was revised downward because “changes to historical data” suggest demand was previously overstated.
“New estimates show weaker demand in many emerging countries, including China,” says senior economist Mathieu D’Anjou in a Desjardins note. “The revised outlook now suggests a near-equilibrium market in 2018. In this context, global crude inventories could remain high, limiting upside pressure on prices.”
D’Anjou says the IEA outlook assumes U.S. crude oil production will continue to rise, but the number of oil rigs has stabilized after WTI dropped to less than US$45 per barrel in the spring.
In light of the downward revision for global demand and the U.S. dollar’s expected appreciation, Desjardins has slightly lowered its year-end targets to US$52 and US$55 per barrel for 2017 and 2018, respectively. “However, U.S. production will need to be watched closely,” says D’Anjou.