The International Energy Agency (IEA) has declared that it expects the oil market to be balanced in the second half of 2016, as the agency revised global oil demand growth forecasts upwards and noted that last month there had been the "first significant drop" in global oil supply since 2013.
Growth in global oil demand will reach around 1.3 million barrels a day (mb/d) in 2016, the IEA said in its latest monthly report published on Tuesday. While in 2017, it predicts "we will see the same rate of growth and global demand will reach 97.4 mb/d."
Non-OECD (Organization for Economic Co-operation and Development) nations will provide most of the expected gains in both years, the IEA said, adding that "the growth rate is slightly above the previous trend, mostly due to relatively low crude oil prices."
On the supply side, the IEA signaled that a glut in supply that has caused oil prices to fall since mid-2014 could be dissipating. In May, for instance, outages in OPEC and non-OPEC countries cut global oil supply by nearly 800,000 barrels a day last month.
For May, the IEA said output stood at 95.4 mb/d which was 590,000 b/d below the level seen a year earlier – "the first significant drop since early 2013."
With oil demand growth rising and global oil supply easing, the IEA said that, "assuming no further surprises, in the second half of 2016 we expect the oil market to be balanced , with a small stock draw in the third quarter of 2016 offset by a small stock build in the fourth quarter of 2016."
Tempering that prediction slightly, the IEA noted that although markets look to be rebalancing as of this month "we must not forget that there are large volumes of shut-in production, mainly in Nigeria and Libya, that could return to the market, and the strong start for oil demand growth seen this year might not be maintained."
"In any event, following three consecutive years of stock build at an average rate close to 1 mb/d there is an enormous inventory overhang to clear. This is likely to dampen prospects of a significant increase in oil prices," it said.
The report comes as oil markets are showing a tentative if unsettled recovery in which geopolitical concerns are currently dominating price movements rather than an over-supply (and failure of demand to keep up) that caused prices to decline from around $114 a barrel in June 2014 to a low of just below $27 a barrel in January.
Oil prices have been hovering around $50 a barrel for the past three weeks but rising fears over global growth and an impending vote on Britain's membership of the European Union are rattling oil markets this week and prices have slipped as the dollar has edged higher.