By design, OPEC’s relentless pursuit of market share, regardless of economic cost, has made it the Krispy Kreme of crude oil production.

In a Dec. 11 report, the International Energy Agency (IEA) said OPEC continues to saturate the world markets in oil, though demand growth is expected to increase 1.2% in 2016 as non-cartel production falls. Analysts said demand growth could rise higher, to as much as 1.5%.

Largely, the IEA report confirmed that supply and demand projections will change little in 2016 with little restraint from OPEC and continuing market punishment on non-OPEC suppliers. However, supply/demand balance appears to be coming by the end of 2016 as non-OPEC supply falls by 600 Mbbl/d, the largest decline since 1992.

Early indicators for fourth-quarter 2015 show growth easing to 1.3 MMbbl/d year-over-year from a third quarter peak of 2.2MMbbl/d.

“Unrelenting oversupply in world markets had already weakened benchmarks during November,” IEA said. “OPEC's decision to scrap its official production ceiling and keep the taps open is a de facto acknowledgment of current oil market reality.”

IEA said OPEC’s rampant pumping makes up the bulk of the 1.6 MMbbl/d global oversupply.

“Consistent with our view, the IEA now expects non-OPEC production declines to reach 0.7 MMbbl/d in 2016,” said Roger R. Read, senior analyst, Wells Fargo Securities. “U.S. onshore production is in decline and would contribute a significant portion of the non-OPEC retreat in 2016.”

For OPEC, money is no object. The cartel has been pumping oil with abandon and its December meeting signaled a “renewed determination to maximize low-cost OPEC supply and drive out high-cost non-OPEC production,” IEA said in a report.

Benchmark crudes approached seven-year lows in early December after OPEC opted to continue producing at will to defend market share, the IEA said.

IEA said evidence points to the Saudi-led strategy pounding its competitors. Lower prices are taking a toll on non-OPEC supply, with annual growth falling November 300 Mbbl from 2.2 MMbbl/d to begin 2015.

IEA said the global supply picture includes:

  • OPEC Rose 50 Mbbl/d in November to 96.9 MMbbl/d;
  • Non-OPEC supply held at 58.5 MMbbl/d in November; and
  • Crude stocks are projected to grow by 300 MMbbl in 2016 as Iranian oil becomes available.

Oswald Clint, senior analyst, Bernstein Research, said 2015 global demand remains at 94.6 million barrels per day (MMbbl/d) and non-OPEC supply is steady at 58.3 MMbbl/d.

Member countries in the Organization for Economic Cooperation and Development (OECD) saw demand revised down by 100 Mbbl/d in the Americas—offset by an identical demand increase in China, a non-OECD country.

“The IEA admitted to being surprised by the magnitude of gasoline demand in China—we are all on the same boat there—but surprisingly to us continues to believe that the U.S. gasoline demand must decelerate,” Read said. “We do not see the market unfolding that way.”

“Total demand growth for 2015 therefore remains at 1.8 MMbbl/d year-over-year, the highest year-over-year growth in five years,” Clint said.

International Energy Agency, world, oil, demand, estimates, 2016

Read said IEA’s report reflects its prior month conclusion that the global oil market is slowly healing but without any excitement anytime soon.

The report address some important topics, chiefly that oil storage maximums will not be breached, he said.

“In the IEA’s view substantial storage capacity exists and is being added – and sub-$50/barrel (bbl) oil is severely impacting non-OPEC supply,” Read said.

With unchecked supply from OPEC and demand dynamics, “2016 should exit with a better supply/demand balance than has been experienced since 2013,” he said.

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