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Is A Crude Glut Looming?

Crude oil supply in the world exceeded demand by 900,000 bpd in the first half of the year, the International Energy Agency said in its latest monthly Oil Market Report, adding that forecasts had pointed to a deficit of half a million barrels daily.

What’s more, the authority said the overhang will extend into the second half of the year as well: “This surplus adds to the huge stock builds seen in the second half of 2018 when oil production surged just as demand growth started to falter,” The IEA said. “Clearly, market tightness is not an issue for the time being and any re-balancing seems to have moved further into the future.”

In the demand sector, however, the IEA had some good news. It said that despite “an exceptionally weak” rate of growth during the first quarter—310,000 bpd—and more robust growth of 800,000 bpd during the second quarter, global oil demand would grow by an average 1.8 million bpd in the second half of the year. This acceleration, according to the authority, would come on the back of higher output from petrochemical plants and improving economic activity.

The latter part of that projection is at odds with persistent worry about the global economy, most recently expressed by the chairman of the U.S. Federal Reserve Jerome Powell. In his testimony to Congress earlier this week, Powell said he expected a slowdown in the United States caused by a broader slowdown in the global economy, not least because of the U.S.-China trade spat.

Going forward, the IEA said it forecast a supply overhang for 2020 as well, on the back of rising supply from non-OPEC producers. That’s in tune with OPEC’s own forecast for 2020: the cartel forecast non-OPEC production growth of 2.4 million bpd. The IEA is a bit more moderate, expecting a supply increase of 2.1 million bpd in 2020 from non-OPEC producers.

By Irina Slav for Oilprice.com

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