The International Energy Agency warned Thursday that oil markets will remain awash with surplus volume for all of 2017 unless OPEC comes through with a promised production cut at the end of November.
Increased pumping by non-OPEC countries including Russia, Brazil, Canada and Kazakhstan will likely boost volumes by 500 million barrels a day next year extending the current oil glut through to the end of next year unless OPEC producers reduce supply, the Paris-based agency said.
OPEC members, led by Saudi Arabia, agreed in principal in September to reduce output to between 32.5 million and 33 million barrels of oil per day when they convene in Vienna on November 30. Hopes that deal will be ratified have faded in recent weeks as OPEC members including Iran, Iraq and Nigeria have said they should be exempted, while OPEC's output has continued to grow, hitting an estimated 33.8 million barrels per day in October.
"If the OPEC countries do implement their ... resolution the resultant production cut will see the market move from surplus to deficit very quickly in 2017, albeit with a considerable stock overhang that will take time to deplete," said the IEA. "If no agreement is reached and some individual members continue to expand their production then the market will remain in surplus throughout the year, with little prospect of oil prices rising significantly higher."
West Texas Crude, the U.S.'s oil standard, traded Thursday at $45.22, down 11% over the past month as faith that OPEC can deliver its cut has waned. Brent crude, the international standard, traded at $46.68, down 12% over the month.
Analysts including Goldman Sachs have warned that the growing list of OPEC members seeking to opt out of the production cut may leave Saudi Arabia absorb price cuts that it is not willing to bare. They have also noted that even if a cut is agreed OPEC members have a poor history of honoring production agreements.
OPEC's motivation to cut production may also be tested by the increased output from oil producers outside the cartel, which will undermine the goal of boosting oil prices.
"Unfortunately for those seeking higher prices, an analysis of the other components provides little comfort," warned the IEA. "The world's biggest crude oil producer Russia will see its output increase by 230 kb/d in 2016, and sustained production at current record levels would result in growth of nearly 200 kb/d next year."
The outlook for oil prices has been further muddied by Donald Trump's surprise U.S. election victory. The President elect has promised to roll back agreements that lifted sanctions on Iran's oil sales.
"I am really interested to see what the global political situation will be and why that won't rasie the price of oil," the Street's Jim Cramer said in the wake of Trump's election.