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With global oil demand growth forecast to rise in 2017 and non-OPEC supply expected to fall, OPEC said in its latest monthly report on Tuesday that "market conditions will help remove overall excess oil stocks in 2017."
In its July report, the 14-member oil producing group said that oil demand growth for 2017 is expected at 1.2 million barrels a day (mb/d), around 0.3 mb/d above the last ten years' average.
The rise in demand growth would come as rival non-OPEC supply continued to fall into 2017, OPEC said, while demand for crude from its own 14 members (Gabon rejoined the group in July) was expected to rise to average 33.0 mb/d in 2017, representing a gain of 1.1 mb/d over the current year and compared to an expected increase of 1.9 mb/d this year.
"Thus, market conditions will help remove overall excess oil stocks in 2017," OPEC noted, a moot point for oil markets that have seen prices slump over the last few years due to a glut in supply and failure of demand to keep pace.
Non-OPEC producers were hit harder by the price slump than their lower-cost OPEC producers and in fact, OPEC's decision in November 2014 to keep on pumping at record levels despite the glut was seen as a strategy of the group to defend its market share and put pressure on its rivals. The strategy has largely worked in terms of rival non-OPEC producers shutting down rigs but it has also hurt poorer members of OPEC, such as Venezuela and Angola.
Without a hint of schadenfreude, OPEC noted on Tuesday that non-OPEC supply was likely to continue to contract this year and into 2017.
"Non-OPEC oil supply in 2017 is expected to contract by 0.11 mb/d. The forecast assumes that the annual decline rate in non-OPEC countries will outpace new production growth. As a result, the contraction seen this year in non-OPEC supply is expected to continue in 2017 but at a slower pace," the report said.
Non-OPEC producers – many based in the U.S. and Canada – tend to have higher production costs and have not been able to weather the price drop as well as OPEC producers based predominantly in the Middle East, Africa and South America.
Showing some caution about its own predictions for oil demand growth, OPEC noted that "various assumptions have been considered in the 2017 projection, the most notable being "an improvement in global economic activities; higher road transportation fuel consumption due to the strong rebound in vehicle sales in the U.S., China and India; and demand for petrochemical feedstocks from new projects in U.S. and China."
It added despite the fact that monetary policies across the globe are expected to remain accommodative, there were a number of uncertainties facing the global economy such as the U.K.'s vote last month to leave the European Union and what impact this could have on the U.K. and EU economies.
Focusing on the group's supply and demand forecasts for the rest of 2016, OPEC predicted that world oil demand growth was expected to be around 1.2 million barrels a day (mb/d), broadly unchanged from the previous report, to average 94.2 mb/d.
On the global supply side, the group said non-OPEC oil supply in 2016 is forecast to show a stronger contraction of 900,000 barrels a day, following a downward revision of 0.1 mb/d since the last report, to average 56.0 mb/d.
"This is mainly due to lower oil output from Canada in the second quarter of 2016 due to the wildfire, as well as from the U.S." It added that Brazil and Canada would be the "the main drivers of (supply) growth next year while Mexico, the U.S., and Norway are expected to see declines."
Despite OPEC's apparent optimism, its report comes as oil prices have hit two-month lows amid growing uncertainty over global growth and how that could affect oil demand.
On Tuesday, Brent crude oil futures were trading at $46.74, up 46 cents from their last close and U.S. West Texas Intermediate (WTI) crude was up 32 cents at $45.09. However, oil prices hit two-month lows on Monday, pressured by rising Canadian supplies, a higher U.S. oil rig count and cuts in bullish hedge fund bets on crude, Reuters reported.
Data has suggested that the oil supply from non-OPEC producers, particularly shale oil producers in the U.S., could be coming back online amid the rise in prices. On Friday, data from oilfield services provider Baker Hughes showed that the U.S. oil rig count rose last week for the fifth time in six weeks.
There have been concerns that if global oil production rebounds too rapidly, a slow rebalancing in oil markets could be thrown off course but there is a long way to go for drillers to catch up. The number of oil rigs increased by 10 to 351 last week but the total number of U.S. rigs is still 45 percent lower than a year ago.