The oil market is undergoing a positive “supply shock” as production in North America continues to grow at a record pace and refining capacity is expected to outpace demand in high-growth emerging markets, the International Energy Agency said Tuesday.
In a truncated version of its monthly report published the same day as its medium-term oil market outlook, the Paris-based energy watchdog said it expected refinery runs to jump by an unusually steep 3.6 million barrels a day between April and August as plants come out of maintenance and new Saudi Arabian capacity comes online.
Excess products from refineries in emerging and developing economies are already looking for markets, even as U.S. net product exports hit records, the IEA said, adding that it expected rising Middle Eastern exports to soon follow suit.
The IEA maintained its forecast that non-OPEC production will rise by 1.1 million barrels a day, led by increased output from North America where production is expected to continue growing at a record pace, leaving backed-out U.S. crude imports looking for other markets.
“This sort of positive crude and product “supply shock” could prove as transformative for the oil industry as was the rise of Chinese demand during the last 15 years,” the IEA said.
The upsurge in supply is already having an impact on the market as the IEA revised lower its estimate of demand for crude oil from the Organization of the Petroleum Exporting Countries in the second quarter of this year by 400,000 barrels a day to 28.9 million barrels a day, well below the group’s self-imposed production ceiling of 30 million barrels a day.
OPEC crude oil production rose by 200,000 barrels a day to 30.7 million barrels a day last month, led by gains in Iraq, the IEA said.
The IEA maintained its oil demand growth forecast for the year at 795,000 barrels a day, but highlighted that it expected demand in emerging and developing economies to overtake that in advanced economies for the first time this quarter.