The oil market will take longer than expected to recover from its current doldrums, the energy industry’s global watchdog has warned, with a deal to limit supply apparently faltering.
Crude oil prices have rallied by almost 10pc in recent weeks following signs that a deal between the world’s largest oil producers to reduce output had helped cut stockpiles in industrialised nations to their lowest level since 2016.
But the International Energy Agency warned that the Organisation of Petroleum Exporting Countries was “weakening in its resolve” to stick to supply cuts.
“There would be more confidence that a market re-balancing is here to stay if some producers party to the output agreements were not, just as they are gaining the upper hand, showing signs of weakening their resolve,” the IEA said.
Earlier this year Opec and other oil producing countries such as Russia agreed to extend their supply deal into 2018.
But the IEA said that Opec compliance with the deal fell again in July to a new low of 75pc. For those non-Opec countries acting in support, the compliance rate was 67pc last month.
“Together, the 22 countries are producing about 470,000 barrels a day in excess of their commitment,” the report said.
“If re-balancing is to be maintained, the producers that are committed to seeing the task through to March 2018 need to convince the market that they are in it together. It is not entirely clear that this is the case today.”
Global inventories fell by 500,000 barrels a day in July to just over 3bn barrels, but stockpiles are likely to remain above the five-year average into 2018, meaning prices may stagnate, the IEA said.
Brent crude oil traded above $53.50 a barrel but has tumbled back to just above $51.40 as cracks begin to show in the supply cut deal.
Meanwhile forecast demand for oil has slipped.
The IEA said the amount of crude required from the cartel this year and next is about 400,000 barrels a day lower than its earlier estimates. The Paris-based agency said 32.6 million barrels a day would be needed from the group this year, lower than the 32.84 million it produced last month.
Analysts at AB Bernstein said: “Global inventories have declined sharply over the past two months, which lifted prices back above $50 a barrel. However, this will not be enough for Opec to draw down all the excess inventories.”
The analysts warned that the IEA’s lower demand forecast and rising output from Libya, Nigeria and the rest of the Opec cartel means the recent reduction in inventories may prove to be short lived.