Global oil demand growth is expected to slow in 2016 from a five-year high in 2015, according to the International Energy Agency's (IEA) latest report, but no one seems to have told the Organization of Petroleum Exporting Countries (OPEC) which keeps pumping at record rates.
According to the IEA's latest monthly market report for October, global demand growth is expected to slow from its five-year high of 1.8 million barrels a day (mb/d) in 2015 to 1.2 mb/d in 2016 "closer towards its long-term trend as previous price support is likely to wane," the IEA said.
Despite the forecast decline in oil demand growth, which the IEA also put down to "downgrades to the macro-economic outlook," OPEC – the 12-member oil group led by Saudi Arabia – doesn't appear to be concerned as it has increased its crude output, offsetting a decline in non-OPEC production.
"World oil supply held steady near 96.6 mb/d in September, as lower non-OPEC production was offset by a slight increase in OPEC crude. Non-OPEC accounted for just under 40 percent of the 1.8 mb/d annual increase in total oil output," the IEA said.
The trend in lower non-OPEC supply was to continue, however, with the IEA forecasting that "lower oil prices and steep spending curbs are expected to cut non-OPEC output by nearly 500,000 barrels a day in 2016."
Oil prices have been through a period of volatility and decline for more than a year now, with benchmark Brent crude falling from a peak price of $114 a barrel in June 2014 to trade around $50 a barrel this week.
The IEA questioned when a rebalancing of the glut in supply and lack of demand could take place. Producers hoping the oil price will recover could be disappointed.
"Oil at $50 a barrel is a powerful driver in rebalancing the global oil market, but the big question is just when will equilibrium be restored?"
"To be sure, the world is using more oil and high-cost supply -- primarily non-OPEC -- is being forced out. But a projected marked slowdown in demand growth next year and the anticipated arrival of additional Iranian barrels – should international sanctions be eased – are likely to keep the market oversupplied through 2016."
For now, lower oil prices are supporting strong demand growth currently, the IEA said, but that trend was expected to change.
"The outlook for oil demand growth is looking softer next year. The International Monetary Fund, in its latest World Economic Outlook, cut 0.2 percentage points from 2015 and 2016 economic growth, with big markdowns in oil-dependent economies, such as Canada, Brazil, Venezuela, Russia and Saudi Arabia."
Despite the predicted "big markdowns" in oil-dependent economies, no change in course is expected from OPEC, which is expected to meet next in December.
OPEC's decision (albeit one led primarily by Saudi Arabia) not to cut production last year in a bid to support prices was widely seen as a strategy to defend its market share in the face of increased competition from shale oil producers in the U.S.
The strategy appears to be paying off with U.S. producers, who have higher production costs than their OPEC counterparts, closing oil rigs and canceling drilling projects.
U.S. drillers cut oil rigs for the sixth straight week last week, removing nine oil rigs in the week ended October 9, data from oil services company Baker Hughes showed last week. Over 1,600 U.S. oil rigs have been removed from the same time period year ago.
In the meantime, a defiant OPEC has been pumping at record rates, often exceeding its 30 million barrels a day production ceiling. This despite calls from some of its members, such as Venezuela and Libya whose governments are struggling with lower oil revenues, to cut output to help lift prices.
The IEA reported that OPEC crude supply rose by 90,000 barrels a day in September to 31.72 mb/d "as record Iraqi output more than offset a dip in Saudi supply."
- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt.
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