Strong second-quarter demand has buoyed oil markets, which have been struggling to rebalance as a supply glut has weighed heavily on prices, the IEA said in its September report.
Demand grew by 2.3 million barrels per day (MMBPD), or 2.4%, in quarter ended June 30, prompting the Paris-based organization to increase its growth estimate for the year to 1.6 MMBPD, or 1.7%.
For 2018, the IEA is predicting growth of 1.4 MMBPD, or 1.4%.
The revision marks an increase from IEA’s August projection, as the organization grows more confident shifting fundamentals are enabling demand to catch up with supply.
In August, the IEA anticipated annual growth would hit 1.5 MMBPD, again an increase over July’s 1.4 MMBPD forecast.
Neil Atkinson, head the IEA’s oil industry and markets division, told CNBC “pretty robust” demand indicated a rebalancing of the market is “underway.”
OPEC output fell in August for the first time in five months, after turmoil in Libya disrupted flows and other member countries reduced production. Compliance levels in August hit 82%.
“There are lots of indicators on the dashboard which point to the fact that stocks are falling,” Atkinson said, also referencing falling ship reserves and reduced output by OECD economies, where production has dropped to five-year averages.
Supply is also said to have been hampered by Hurricane Harvey in the U.S., which caused refineries to shut. The storm is estimated to have shut in roughly 200,000 barrels per day (BPD) of production in late August, with a further 300,000 BPD expected to be lost in September. However, Atkinson told CNBC the dip was unlikely to have “lasting impact.”
Overall, global supply fell by 720,000 BPD in August, Kallanish Energy learns.
Atkinson said that this shift in output had already been reflected by markets, which quickly recovered from the impact of extreme weather and is now in backwardation, meaning the spot price of oil stocks is higher than the forward price.