Expected oil surplus could force new Saudi oil minister to cut output and boost prices

COMPETITION in the oil market is getting tougher, which could lead to an oil surplus and lower prices, the International Energy Agency said in its monthly Oil Market Report on Thursday.

In August, three major countries Russia, Nigeria and Iraq, produced 0.6 million barrels of oil per day (mb/d) more than their allocations, while Saudi Arabia produced 0.6 mb/d less than allowed.

The pressure from an expected growing surplus amid low demand and as growth weakens amid uncertainty around the global economy, and particularly trade, could force the newly appointed Saudi energy minister Prince Abdulaziz bin Salman to lower production further in the oil rich state to boost the oil price, the IEA said.

Oil prices are about 20% lower than a year ago.

“While the relentless stock builds we have seen since early 2018 have halted, this is temporary,” the IEA said. “Soon, the Opec+ producers will once again see surging non-Opec oil production with the implied market balance returning to a significant surplus and placing pressure on prices. The challenge of market management remains a daunting one well into 2020,” the agency said.

The IEA maintained its growth estimate for 2019 at 1.1 mb/d, even though June data show that demand increased year-on-year by less than 0.2 mb/d.

The IEA said its balances for the second half of the year imply a stock draw of 0.8 mb/d, based on the assumption of flat Opec production, stronger demand growth and weaker non-Opec supply growth.

“However, this is only really a breather,” it said.