IEA sees Q1 inventories build up despite OPEC+ cuts

Oil supplies are likely to build up in the first quarter of 2020 due to global supply growth despite an agreement between OPEC and partners to further cut their production, International Energy Agency (IEA) said.

In its latest Oil Market Report, the Paris-based agency said non-OPEC supply growth is expected at 2.1 million barrels per day (bpd) following a reduction of the previous forecast, but global oil inventories could build by 0.7 million bpd in 1Q20.  

OPEC and its allies, together known as OPEC+ agreed earlier this month, to deepen production cuts in the first quarter of 2020 with Saudi Arabia volunteering an additional reduction of 400,000 bpd to take the total cut to 2.1 million bpd. This implies a supplies reduction of 500,000 bpd from current levels.

IEA said November oil supplies held steady at 101.36 million bpd, down by 1.2 million bpd year-on-year.

“For the last several months in this Report we have suggested that in early 2020 the oil market is likely to see a significant surplus of supply over demand. On 6 December, countries participating in the OPEC+ agreement took a step to address this imbalance by deepening their cuts…,” IEA said, adding that while the voluntary cut by the Saudis has already been partially delivered, the overall effectiveness of the OPEC+ agreement depends on the willingness of all its parties to fully comply, including those whose compliance so far has been less rigorous.

This revised deal excludes from the production ceiling 1.5 million bpd of condensate output by non-OPEC producers. Russia, in particular, now has 0.8 million bpd of supply that can legitimately be increased.

“If all the countries comply with their new allocations and Saudi Arabia delivers the rest of its voluntary cut, the fall in production volume versus today will be about 500,000 bpd. In this Report we have reduced our forecast for non-OPEC production growth next year from 2.3 million bpd to 2.1 million bpd to take account of lower output from participants in the OPEC+ deal and a weaker growth outlook for Brazil, Ghana and the United States. Even so, with our demand outlook unchanged, there could still be a surplus of 700,000 bpd in the market in 1Q20,” IEA said.

On the demand side, IEA said it left unchanged its 2019 and 2020 forecast for global oil demand at 1 million bpd and 1.2 million bpd respectively.