The global oil glut will swell until late 2017, the U.S. government forecast on Tuesday in an outlook that offered little hope of near-term relief for energy producers reeling from the collapse of crude prices to 12-year lows around $30 a barrel.
Increased Iranian oil output should feed the global glut this year with the expected lifting of Western sanctions on that country's exports, the U.S. Energy Information Administration said. The agency forecast that a limited decline in U.S. supplies next year and steady growth in global demand will help ease the glut only in the third quarter of 2017, the first decline after nearly four straight years of gains.
In its first forecast for 2017, the EIA said global oil production would likely rise to nearly 96.7 million barrels per day from more than 95.9 million bpd this year. Demand would grow by only 1.4 million bpd in 2017, the same rate as 2015 and 2016. U.S. production, now expected to decline by 700,000 bpd this year to 8.7 million bpd, will fall by a slower rate in 2017 to about 8.5 million bpd.
"If nothing big blows up and emerging economies don’t warm up, the oil price doesn’t look likely to go up until late 2017," said Kevin Book, an energy policy analyst at ClearView Energy Partners.
The EIA also predicted that Iran's oil exports would expand into 2017, growing by 500,000 bpd that year after a 300,000 bpd increase in 2016, if Western sanctions are lifted.
The timing of sanctions relief is uncertain, but EIA assumed that implementation of the nuclear deal will occur in the first three months of 2016, as Iran has made "faster than expected progress" in meeting obligations under the deal.
Continued strong production from Saudi Arabia has added to the supply glut and U.S. oil producers have been hit hard. Oil prices sank this week on concerns about losses on China's stock market. On Tuesday, Brent and U.S. crude both briefly fell below $30 a barrel.
Brent crude should average $40 a barrel in 2016 and $50 a barrel in 2017, with U.S. prices averaging about $2 per barrel lower than Brent in 2016 and $3 lower in 2017.
"Our oil price forecast is still fairly modest," Adam Sieminski, the head of the EIA, told reporters on Tuesday about the report. "The process of rebalancing global prices is under way but it takes a while."
(Reporting by Timothy Gardner and Catherine Ngai; Editing by David Gregorio and Bill Trott)
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