The rise in global oil production, led by the U.S., is likely to outpace growth in demand this year, the International Energy Agency (IEA) said Feb. 13.
The Paris-based IEA raised its forecast for oil demand growth in 2018 to 1.4 million barrels per day (bbl/d), from a previous projection of 1.3 million bbl/d, after the International Monetary Fund upped its estimate of global economic growth for this year and next.
Oil demand grew at a rate of 1.6 million bbl/d in 2017, the IEA said in its monthly market report.
However, the rapid rise in output, particularly in the U.S., could well outweigh any pick-up in demand and begin to push up global oil inventories, which are now within sight of their five-year average.
"Today, having cut costs dramatically, U.S. producers are enjoying a second wave of growth so extraordinary that in 2018 their increase in liquids production could equal global demand growth," the IEA said.
"In just three months to November, [U.S.] crude output increased by a colossal 846,000 bpd and will soon overtake that of Saudi Arabia. By the end of this year, it might also overtake Russia to become the global leader."
U.S. crude output could reach 11 million bbl/d by the end of this year, according to estimates from the U.S. Energy Information Administration.
OPEC, along with other exporters such as Russia, have agreed to maintain a joint restriction on crude supply for a second year running in 2018, to force inventories to drain and support prices.
Oil inventories across the world's richest nations fell by 55.6 million bbl in December to 2.851 billion bbl, their steepest one-month drop since February 2011, the IEA said.
For 2017 as a whole, inventories fell by 154 million bbl, or at a rate of 420,000 bbl/d. By the year-end they were only 52 million bbl above the five-year average, with stocks of oil products below that benchmark, the IEA said.
"With the surplus having shrunk so dramatically, the success of the output agreement might be close to hand. This, however, is not necessarily the case: oil price rises have come to a halt and gone into reverse, and, according to our supply/demand balance, so might the decline in oil stocks, at least in the early part of this year."
Oil production outside OPEC nations fell by 175,000 bbl/d in January to 58.6 million bbl/d, but was still 1.3 million bbl/d higher than January last year, predominantly because of the 1.3 million bbl/d year-on-year increase in U.S. output.
OPEC output was largely steady at 32.16 million bbl/d in January and compliance with the supply deal reached 137%, due in part to declines in Venezuela, where economic crisis has paralyzed much of the country's oil production capacity.
The IEA estimates demand for OPEC's crude in 2018 will average 32.3 million bbl/d, after dropping to 32 million in the first quarter of the year.
The IEA said oil prices, which briefly touched a high of $71/bbl in January, could be supported even if U.S. production rises, provided global growth remains strong, or if unplanned supply outages persist.
"If so, most producers will be happy, but if not, history might be repeating itself," the IEA said.