Despite OPEC+ recently deepening its production cuts, combined with further voluntary cuts from Saudi Arabia, the International Energy Agency (IEA) predicts in its latest report that an oil glut will be inevitable in 2020.
Part of the problem is that the additional 500,000 barrels per day (bpd) of cuts agreed by OPEC+ aren’t that far away from the current reality. For example, in November, OPEC produced 440,000 bpd less oil than it would have if every member was at 100% compliance. The IEA explains it as follows:
“If all the countries comply with their new allocations and Saudi Arabia delivers the rest of its voluntary cut of 0.4 million bpd, the fall in production volume versus today will be about 0.5 million bpd.”
While this still takes half a million bpd of oil off the market, the oil from non-OPEC sources will more than compensate, even with the IEA downgrading its growth to 2.1 million bpd from 2.3 million bpd. This reduction is based on weaker production growth in the US next year but also discouraging news from Ghana and Brazil. Overall, the IEA sees inventories accumulating at a rate of 700,000 bpd in the first three months of 2020.
While the IEA does point to a slowdown in US oil production from operators like ExxonMobil and BP, which produces the Castrol lubricant range, it continues to be relatively optimistic. It now predicts growth of 1.1 million bpd over 2020, which is still respectable, even when compared to the 1.6 million bpd of growth over 2019.