International Energy Agency warns of "relentless" oil oversupply next year if Opec output cut fails to cap production

Francesca Washtell
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OPEC Heads Of State Gather In Saudi Arabia
Opec will meet in Vienna and attempt to formalise an output deal in three weeks' time (Source: Getty)

The International Energy Agency (IEA) has warned global oil markets risk another year of "relentless" oversupply if Opec does not hash out a firm production cut later this month in Vienna.

In its monthly oil market report, the agency pointed to other producers boosting output and global demand remaining flat as increasing threats to a glut continuing well in 2017.

The 14 member states of the Organisation of the Petroleum Exporting Countries (Opec) will attempt to formalise a deal provisionally agreed two months ago that will cap daily production to between 32.5m and 33m barrels per day (bpd). This would represent a cut of 700,000 bpd.

Read more: With no new material, Opec can still move the market

Squabbles between members and countries such as Iraq opting out of the agreement have increased analysts' scepticism that the consortium will seal a decisive deal.

The IEA said that while it can't predict the outcome of the meeting at the end of the month, it said it can "see the scale of the task ahead".

The agency estimates Opec members pumped 33.8m bpd in October, "well in excess of the high end of the proposed output range".

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If Russia, the world's biggest crude oil producer, sustains production at current record levels its output will grow by nearly 200,000 bpd in 2017 and output is also expected to grow in Brazil, Canada and Kazakhstan. Coupled with unchanging demand, this could leave markets awash with oversupply, the IEA said.

"On the demand side of the oil balance, our outlook for world oil demand growth at 1.2m bpd in 2016 and 2017 remains unchanged," the IEA said.

Read more: Oil prices rise one per cent as Opec reaffirms commitment to output cut

"There is currently little evidence to suggest that economic activity is sufficiently robust to deliver higher oil demand growth, and any stimulus that might have been provided at the end of 2015 and in the early part of 2016 when crude oil prices fell below $30 per barrel is now in the past."

Although the price of global benchmark Brent crude lifted above $50 after the initial agreement was reached in late September, a giant rise in US crude stocks last week and bearish investor sentiment have pushed it to trade around $46 in recent days. In October US sweet crude reached its highest level in more than a year.

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