IEA's Sadamori says Asia will lead global demand growth in 2017

A worker stands on pipes at an offshore oil engineering company in Qingdao, in China's eastern Shandong province.
STR | AFP | Getty Images

The global oil market is re-balancing although high inventories and robust U.S. production are offsetting the effects of an OPEC output cut and growing Asian demand, an official with the Paris-based International Energy Agency (IEA) said Tuesday.

"The agreement to cut production between OPEC and some non-OPEC countries seems to have been seeing quite good implementation in terms of compliance," Keisuke Sadamori, director of the Energy Markets and Security Directorate at the IEA told CNBC's "Squawk Box."

But Sadamori was overall cautious in his outlook, as there remains concerns over U.S. shale drilling adding supply at a rapid pace and inventories make the re-balance a work-in-progress.

Robust drilling activities has contributed to a massive stock build in the U.S. last year. Oil held in storage in the Organization for Economic Co-operation and Development, a group of developed nations are high at above 3 billion barrels in January, he noted.

The upside was that oil inventory levels came down slightly in the second half of 2016 due to strong demand growth, he said.

"This year, we are seeing substantial decrease in OPEC's production levels. But at the same time, as we are starting from high inventory level, the market's view is that we still have plenty of oil in the tank. So in terms of the market's expectation, it is really hard to see people feel confident that the re-balancing is happening soon," he said.

OPEC joined with non-OPEC producers on a coordinated pact to trim crude supplies by nearly 1.8 million barrels per day (bpd) for the first six months of the year.

In terms of demand, Asia will lead global growth this year as production on the continent declines, he said.

"Both the very robust demand growth and declining supply will increase the import requirement of the Asian continent," said Sadamori.

Asian countries will also need to add refining capacity to respond to growing demand, he added.

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