Forecasts for U.S. shale oil growth and uncertainty around China's crude imports may see oil stocks building again next year after OPEC and non-OPEC cuts contributed to "substantial" draws this year, the International Energy Agency (IEA) said. "Assuming OPEC production remains constant, we don't really see a big draw in OECD (Organization for Economic Cooperation and Development) crude inventories over the next 6-9 months," Olivier Lejeune, IEA oil storage market analyst, said on Friday. "Our balances imply a build for 2018," Lejeune added, again assuming constant OPEC production.
A key reason for slowing stock draws next year is an expected increase in non-OPEC production, lead by shale producers in the United States where the IEA expects production to rise by an "enormous" 1.1 million bpd (bpd), Lejeune said. Adding to this is uncertainty around Chinese crude imports.
The lack of firm inventory data in China limits the ability to estimate its future demand but the scale of its imports this year implies a fairly large build in its commercial and strategic reserves which have to some extent offset inventory draws elsewhere. "The big caveat to (forecasts for OECD stock draws) is that China is probably building," Lejeune said. Assuming constant OPEC production, the agency, which coordinates energy policies of industrial nations, estimates an average 200,000 bpd draw this year, a lot of which has already taken place in the second quarter, he said.
In its most recent monthly oil market report the IEA said OECD commercial stocks were unchanged in July at 3.016 billion barrels, when they normally increase, but they remained 190 million barrels above their five-year average. OPEC and non-OPEC members led by Russia decided in May to extend oil output cuts by nine months to March 2018 to tackle a global oil glut that halved oil prices over the previous three years, leading to a sharp drop in revenues.
Lejeune said rising production from OPEC-members Libya and Nigeria may also scupper the group's effort to rebalance the market. Oil prices this month reached a near 26-month high, amid signs that the market was well on its way towards rebalancing. But to keep up momentum in market rebalancing, industry participants have said OPEC and non-OPEC producers will have to extend output cuts beyond next March.