In the IEA's most recent Oil Market Report, the agency stated that the oil market has essentially reached a balance and will continue to accelerate in the near term. Further, the IEA stated that the oil market was close to balance in the first quarter of the year, with average supply building by 100,000 bpd on a global level, and at 300,000 bpd for OECD members. Notably, if OPEC keeps its output at the April level, the authority estimates an inventory draw of 700,000 bpd by the end of the second quarter. Further, this number will grow if the output cut extension is agreed by everyone at the May 25th meeting. However, the agency also warned that even if OPEC extends its cuts, much work remains to be done in the second half of 2017 in order to drain stocks closer to its benchmark five-year average (roughly 2.7 Billion barrels). Also, while compliance with the agreed production cuts by OPEC and the 11 non-OPEC countries has generally been strong (roughly 96%), Libya and Nigeria (currently excluded from the cuts) could weaken the impact of the deal should production from these countries continue to show significant increases.
On the demand side, the IEA is forecasting global demand growth of 1.3 million b/d in 2017, unchanged from its April report. The agency cited a weaker-than-expected demand for oil from investors in the first three months of the year (particularly in the U.S. and India). However, Chinese demand continues to impress (compensating for most of the weakness in other countries) and is expected to be one of the main growth stories in 2017. Overall, the IEA's report concludes that even with solid demand and continued supply restraint from OPEC, absorbing the enormous glut of oil to reach the benchmark five-year average will undoubtedly be slow going.
A Canadian Energy expert