The cost of failing to reach a deal this month is rising for OPEC as rival producers are set to revive production in 2017, the International Energy Agency predicted.
Crude prices may retreat again amid “relentless global supply growth” unless the Organization of Petroleum Exporting Countries enacts “significant” output cuts, the IEA said in its monthly report on Thursday. Non-members such as Brazil, Canada, Kazakhstan and Russia will raise output by 500,000 barrels a day in 2017, after enduring their biggest slump in more than two decades, the agency said.
OPEC will meet on Nov. 30 to finalize the details of a production cut members agreed in Algiers in late September. While the accord initially helped revive crude prices to more than $50 a barrel, oil has since retreated on doubts the agreement will be fulfilled as key members Iran and Iraq argue that they should be exempt from output restraints. Russia has said it would be willing to freeze production if OPEC can agree to cuts.
“If no agreement is reached and some individual members continue to expand their production then the market will remain in surplus throughout the year,” said the Paris-based agency, which advises consuming nations on energy policy. “If the supply surplus persists in 2017, there must be some risk of prices falling back.”
Oil futures climbed about 16 percent in the two weeks after OPEC’s Sept. 28 decision in Algiers to reduce output, a move that ended the organization’s two-year policy of pumping without limits to pressure its competitors. Prices reached $51.93 a barrel in New York on Oct. 19, though have since slipped to near $45 on growing skepticism about the deal.
The IEA boosted estimates for supplies from outside OPEC in 2017 by 110,000 barrels a day due to an improved outlook for Russia, which is set to add 190,000 barrels a day next year. Non-OPEC supply will total 57.2 million barrels a day next year, according to the report.
While the oil market would “move from surplus to deficit very quickly in 2017” if OPEC implements its Algiers accord, this would take “significant cuts,” the agency said.
OPEC decided in the Algerian capital to reduce output to a range of 32.5 million to 33 million barrels a day. Reaching that target would require a reduction of 800,000 to 1.3 million barrels a day from the levels pumped in October, the IEA report indicates. Even if they perform such a cut-back, inventories that accumulated during the years of oversupply “will take time to deplete.”
The group’s 14 members raised production by 230,000 barrels a day to 33.83 million a day in October as Iraqi output reached a record and Nigeria and Libya restored halted supplies, according to the report.
Global oil demand growth will remains on track to ease this year, to 1.2 million barrels a day from the five-year peak of 1.8 million in 2015. There is “currently little evidence to suggest that economic activity is sufficiently robust to deliver higher oil demand growth” in 2017, the IEA said.