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OPEC's effort to shrink huge global crude stockpiles may fail even if the cartel agrees to extend its agreement to pump less oil, the International Energy Agency warned on Tuesday.
Members of OPEC meet next week to discuss rolling over output cuts into the second half of 2017. Top producers Saudi Arabia and non-OPEC member Russia have already backed an extension through March 2018.
OPEC and 11 other exporting nations agreed last year to take 1.8 million barrels a day off the market in the first six months of this year. The goal is to reduce the amount of oil sitting in storage to the five-year average.
Thus far, the deal has not succeeded. Crude stockpiles in the 35-nation Organization for Economic Co-operation and Development reached a new all-time high in March, largely due to robust U.S. imports and maintenance at Northern Hemisphere refineries that dampened crude demand, IEA reported on Tuesday.
Those stockpiles will fall by about 700,000 barrels a day in the second quarter if OPEC keeps April's production level, the IEA forecast in its latest monthly report. The energy adviser said the drawdown will be even greater if OPEC maintains its policy during the next six months, when refineries will consume more crude oil to meet peak demand for fuel in the summer.
But OPEC still may not hit its target this year.
"Even if this turns out to be the case, stocks at the end of 2017 might not have fallen to the five-year average, suggesting that much work remains to be done in the second half of 2017 to drain them further."
Some market watchers now believe exporters must agree to deeper cuts, but a number of analysts say that is not likely.
To be sure, EIA believes supply and demand have basically balanced following a protracted period of global oversupply that sent oil prices to 12-year lows below $30 a barrel last year. Exporters' supply cuts have boosted prices back above $50 a barrel for much of the last 5½ months.
But the rebound has emboldened producers beyond the two dozen nations that have curtailed output, particularly U.S. shale drillers that rely on expensive production methods to unlock oil and gas from rock formations.
U.S. crude output has surged about 10 percent since September, driven by new Gulf of Mexico and shale output. IEA on Tuesday raised its forecast for U.S. and non-OPEC supply growth in 2017 by 100,000 barrels a day and 110,00 barrels a day, respectively. Those projections could yet rise further, IEA said.
"Such is the diversity and dynamism of the U.S. shale sector that our numbers are likely to be a moving target as 2017 progresses," it cautioned.
Libya and Nigeria also bear watching, IEA said. The OPEC members won exemptions as they attempt to restore oil supply sidelined by internal conflicts, but production has risen in both nations and "any significant increase clearly offsets cutbacks by other OPEC and non-OPEC countries," according to IEA.