Nobody agrees when the oil market will re-balance after OPEC deal

The first half. No, the second. Certainly this year. Or next.

That’s the range of views you’ll hear if you ask the International Energy Agency, OPEC, Saudi Arabia and the U.S. government when the production cuts announced last week will end the global oil glut.

The Dec. 10 agreement between OPEC and 11 other producers could begin to reverse three years of oversupply within the next six months, according to the IEA, Paris-based adviser to 29 industrialized nations. The Organization of Petroleum Exporting Countries itself is less hopeful, predicting that stockpiles won’t fall until the second half of 2017.

Khalid Al-Falih, energy minister of OPEC’s biggest and most influential member, Saudi Arabia, was less precise than either institution on Wednesday, saying that he sees supply and demand aligning at some point this year without specifying when.

For the Energy Information Administration, a unit of the U.S. Energy Department, that may still be too soon. The EIA’s latest market outlook on Dec. 6 projected that inventories will accumulate by an average 420,000 barrels a day next year.

“Given the paucity of timely supply data, the market has to take a lot on faith,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London.

OPEC and 11 other producers including Russia and Kazakhstan agreed to jointly cut output by about 1.8 million barrels a day in an effort to end a three-year surplus that’s battered both their economies and investment by the world’s biggest oil companies.

While prices have climbed, the rally may be losing momentum as traders question how far producers will comply with the deal and when it will disperse an inventory surplus of more than 300 million barrels, enough to supply China for almost a month.

Different Views

Anyone hoping for a quick answer to that question may be disappointed: behind the institutions’ opposing views on when the market will re-balance are differing estimates of global oil demand. OPEC sees total consumption averaging 95.6 million barrels a day in 2017, the EIA anticipates 97 million barrels a day, and the IEA predicts 97.6 million. They also disagree on how much oil non-OPEC nations will produce, with the OPEC forecasting 56.5 million and the IEA 57 million.

The difficulty of forecasting oil supply and demand on a global scale is underscored by the major agencies inability to even agree on how much oil the world used last year.

There’s a gap of about 1.6 million barrels a day between the 2015 demand estimates of the IEA and OPEC — roughly equivalent to all the crude pumped each day by OPEC member Nigeria.