Opec said Monday a supply glut in the world's oil market is likely to shrink further, leading to a more balanced market by the end of the year. "The excess supply in the market is likely to ease over the coming quarters," the Organisation of the Petroleum Exporting Countries said in its June report. The oil price is now at just under $50 a barrel, having recovered in recent months from a slide that saw it tumble from over $100 in 2014 to close to $25 in January.
In its report, Opec attributed the recovery to a myriad of factors, including a weaker dollar, falling production in the US and forecasts of a sharp fall in non-Opec oil supply this year, partly due to disruptions in some producer countries. Falling US inventories and production and the impact of wildfires in Canada curbed supply, as did rebel attacks in Nigeria and an oil refinery strike in France. But Opec also warned that there was still much more oil available than demand for the commodity, and inventories continued high.
"There is still a massive global supply overhang," it said. However, Opec said solid economic growth across the world, despite a weak start to the year, was likely to underpin future oil demand. Global gross domestic product (GDP) is expected to rise to 3.1 percent this year after 2.9 percent last year. "Provided that there is a clearer picture regarding oil supply and demand, the expected improvement in global economic conditions should result in a more balanced oil market toward the end of the year," Opec predicted.
Opec itself has done little to correct the market's imbalance, failing earlier this month to agree on any production ceilng at a key meeting and deciding instead to keep oil gushing as the moderate recovery in the oil price eased pressure to limit output. Kingpin Saudi Arabia said at the time that the cartel was "very satisfied" with the market. World demand for oil is projected to rise by 1.2 million barrels per day in the second half of the year compared to the same period in 2015, taking global oil demand to an average 94.18 mb/d for the whole year, the cartel said Monday.
Demand in the developed economies belonging to the Organisation for Economic Cooperation and Development (OECD) is expected to be strongest in the Americas, flat in Europe and contracting in Asia. Outside of the OECD area, demand is expected to be vibrant in India thanks to solid economic growth, but mixed in China. On the supply side, non-Opec production is projected to decline, notably so in the former Soviet republics and Russia.
However, Opec noted that oil market operators who re-entered the market with enthusiasm in May became "somewhat less interested in long positions" by the end of the month amid renewed worries about a global overhang of oil stocks. In Asian trading Monday, WTI was down 62 cents, or 1.26 percent, at $48.45 a barrel while Brent fell 61 cents, or 1.21 percent, to $49.93.
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