Since OPEC’s agreement to cut oil production at its next meeting in November, prices have risen by 15%. But oil producers outside of the Middle East are still living in straw houses until the accord is official.

The International Energy Agency’s (IEA) oil market report outlook revealed only a minor change in oil demand ahead, with growth stuck at 1.2 million barrels per day (MMbbl/d) in 2016 and 2017.

As for supply, OPEC reached record production of 33.64 MMbbl/d while other economically developed nations continued to scale back and inventories shrank, the IEA’s report, released Oct. 11, said.

“The waiting game is over,” the IEA said. “OPEC has effectively abandoned its free market policy set in train nearly two years ago. Global oil inventories are far too high—in the view of some producers—and they aren’t being worked off nearly fast enough.”

OPEC has agreed to cut supply to between 32.5 MMbbl/d and 33 MMbbl/d, with details to be set by the end of November.

The real work will be in the details, including individual country allocations, production baselines and an implementation date, the IEA said. Another wrinkle: Iran, Libya and Nigeria want to raise output and are said to be exempt from cuts.

“A significant rebound in supply from Libya and Nigeria and further growth from Iran would suggest that bigger cuts would have to be made by others, such as Saudi Arabia, to meet the new output target,” the agency said.

However, OPEC Secretary General Mohammed Barkindo said on Oct. 11 that any deal to freeze oil production was likely to last an initial six months before being reviewed, Reuters reported.

With Abandon

While the world waits, Saudi Arabia, Kuwait and the UAE are keeping supply at near-historic highs, the IEA said.

OPEC crude output rose by 160 Mbbl/d in September as Iraq pumped at the highest rate ever and Libya reopened ports. Production grew 900 Mbbl/d higher than the group’s 2015 output in the Middle East.

In the U.S., supplies fell. Crude production is down 730 Mbbl/d below 2015 in July. For the year, U.S. oil supplies are forecast to decline by nearly 500 Mbbl/d, with a 200 Mbbl/d rise in NGL output offsetting steeper losses.

Total oil supplies are forecast to start rising in the fourth quarter, leaving production in 2017 at 12.5 MMbbl/d.

Capital One Securities saw the IEA’s report as bullish, with the non-OPEC supply forecast cut slightly for 2016, though demand growth forecasts in 2016 and 2017 remained unchanged. However, absolute demand figures for 2015, 2016 and 2017 were upgraded by 2 Mbbl/d.

Weekly inventory data in the U.S., Europe, Singapore and floating storage have also retreated significantly from mid-summer peaks, said Roger D. Read, senior analyst at Wells Fargo Securities.

“In our view the underlying fundamentals are reflecting an improving supply/demand balance,” Read said. “The agreement by OPEC, if adhered to, could bring the global balance point forward into first-half 2017 versus our forecast of third-quarter 2017.”

Economically advanced nations’ commercial inventories fell for the first time since March, by 10 MMbbl in August, due to a larger than seasonal decline in crude stockpiles. Preliminary data shows crude stocks also falling in Japan and the U.S. in September.

Demand

Global demand has played itself into a near-stalemate amid the glut of oil and low prices.

In third-quarter 2016, the net global demand also drifted higher by 150 Mbbl/d to 96.80 MMbbl/d, the IEA said.

Russia, India, Korea and many European nations have shown increased demand. But that’s been blunted by weaker conditions in the U.S., Brazil, Saudi Arabia and Turkey, the IEA said.

“What remains clear is that year-over-year global oil demand growth has clearly slowed from a five-year high of 2.53 MMbbl/d in third-quarter 2015 to 77 Mbbl/d,” the IEA said. “Although we anticipate a modest weather-related uptick in fourth-quarter 2016, growth of 1.24 MMbbl/d is expected for the year as a whole.”

That leaves growth significantly below the recent peak of 1.81 MMbbl/d in 2015.

Read said that the winter may be a swing factor in 2016 and 2017 after the previous season’s abnormally warm temperatures drove down demand.

“We expect demand to increase by 1.4 MMbbl/d in 2016 and 1.35 MMbbl/d in 2017,” he said.

The U.S. demand picture is a major factor, contracting by 2.1% year over year in July.

The key contributors for July’s sharp drop are big declines in U.S. industrial oil use.

“These falls more than offset the gains in U.S. gasoline, residual fuel oil and jet/kerosene,” the IEA said. “The split clearly demonstrates the dichotomy that exists in the US economy: persistent declines in the U.S. industrial sector and continued growth in the consumer sector.”

Refining

The IEA continued to highlight a dramatic slowdown in expected throughput in global refining runs through year-end 2016, Read said.

“The IEA noted that such a slowdown would be more likely in a recessionary period,” he said. “The net effect of lower throughputs could be a surge in crude oil inventories in fourth-quarter 2016.”

The IEA said that refiners are weighed down by autumn maintenance and expected to reduce fourth-quarter throughput by 1.1 MMbbl/d, up just 70 Mbbl/d from 2015.

Global throughput in 2016 is expected to grow year-on-year by 220 MMbbl/d, the lowest annual growth rate in more than a decade, IEA said.

Darren Barbee can be reached at dbarbee@hartenergy.com.