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Crude oil demand will overtake supply in the second half of 2017, but unnecessary reserves will continue to exist in 2018, affecting global oil producers, which are cutting their yields to deal with excessive stocks. According to the forecast by the International Energy Agency (IEA) the higher-than-expected demand growth next year will be covered by the stronger production of USA and other countries outside the Organization of Petroleum Exporting Countries (OPEC).

In its monthly market report, which includes forecasts for the next year, the Paris-based agency says: “The prospects for 2018 should be sobering for those producers who want to limit supply”.

OPEC and Russia have joined forces this year to reduce the yield and hence the surplus on the market that puts pressure on prices. The oil producers agreed in May to extend the deal on limiting yields for another nine months, while shale production in the US is accelerating and countries excluded from the deal are growing exports.

International Energy Agency (IEA) expects global demand to rise by 1.4 million barrels per day next year compared to an increase of 1.3 million barrels per day in 2017, as China and India will increase their consumption to a record 99.3 million barrels per day. However, the growth of yields outside OPEC, headed by USA, will outpace demand growth. The forecast indicates that it will increase by 1.5 million barrels per day and this is more than twice as fast as this year. Shale production in the US is the most serious reason for this. The forecast is that it will expand by 780,000 barrels next year after a 430,000-barrel growth in 2017. The dynamics of this exceptional, very diverse industry is such that growth is even faster, according to IEA.

OPEC and Russia said they would try to reduce world oil reserves to a five-year average. Currently they have 292 million barrels above this target.

“In the scenario where the OPEC countries continue to implement their mining agreement, the reserves may not fall to the desired level until the end of the deal in March 2018”, says IEA.

The forecast contradicts to the expectations for a deficit in the oil market in the second half of this year, when demand is generally stronger. The OPEC’s crude oil production grew by almost 300,000 barrels per day in May to about 32 million barrels per day, which is the highest level this year due to the growth at conflict-ridden Libya and Nigeria, which are excluded from the deal. However, OPEC’s total yield is still lower than the 33 million barrels per day produced in the last three months of last year.

