TEHRAN – In its latest monthly oil market report called “2020 vision”, the International Energy Agency (IEA) said the “relentless” growth in U.S. production is going to significantly disrupt the supply and demand balance in the global oil market.

The IEA report sees the U.S. accounting for 90 percent of the growth in the supply side of the oil market in 2019, and also having the greatest share of the 2.3-million-barrels growth in 2020.

Disruption of supply-demand balance

As one of the major sources of information and insight for the oil traders, the recent IEA report raised some red flags for both supply and demand side of the oil market.

A significant slowdown of the oil demand in the current year added up by the increase in the supply from non-OPEC countries, especially the United States is indicating that the market should once again expect oversupply in the year to come.

In the report, IEA cut the global oil demand growth in 2019 for a second consecutive month. The agency estimates the oil demand at 1.2 million barrels per day (mb/d). 

Supply growth from the Non-OPEC nations is also seen to accelerate from 1.9 mb/d this year to 2.3 mb/d in 2020, mostly coming from the U.S. shale producers.

The U.S. Energy Information Administration expects annual average U.S. oil production to grow 1.4 million barrels a day this year. And the country’s daily oil production is expected to reach nearly 13 million barrels by the end of 2019. 

OPEC cuts vs. U.S. supplies

While OPEC member states and some non-OPEC countries are trying to keep their production at a certain level by cutting their output, U.S. oil producers, mostly owned by the private sector, have no obligation to adhere to production cutbacks and are unconstrained in production growth.

OPEC and its allies including Russia have agreed to cut their production by 1.2 million barrels per day as from January, however the question of “how long to keep on cutting output facing the surge in U.S. production”, has been haunting the OPEC+ efforts since the deal was reached.

In such a situation, the gathering of OPEC+ ministers which is scheduled to be held later this month in Vienna, seems to be a challenging event. 

The short-term uncertainty surrounding the global oil demand, as well as the significant growth in supply by non-OPEC nations like U.S., Brazil and Norway will be the top two major issues faced by OPEC+ in the Vienna summit. 

The meeting is scheduled to be held during June 25-26 in Vienna, but the Russian oil minister insists that the meeting should be postponed to July 2-4.

What to expect

The International Energy Agency expects demand for OPEC's oil to be reduced by around 650,000 barrels per day in 2020 compared to the figures for May. 

So, Next year OPEC it facing a difficult path in balancing the oil market, because according to the IEA report, from the H2 2019 onwards, we should be expecting a wave of supply from non-OPEC nations.