Oil output set to outpace demand in 2018: IEA

The market wasn't caught by surprise by the IEA data, as on Tuesday, the American Petroleum Institute reported that US crude inventories rose 2.8 million barrels last week, while gasoline supplies increased by 1.8 million barrels.

A day after OPEC complained that increased output in the USA was slowing efforts to rebalance supply and demand in the oil market, the IEA also suggested that the dynamism of U.S. producers could prove a headache for exporters.

The U.S. Energy Information Administration (EIA) said gasoline inventories increased by 2.1 million barrels during the week ended June 9, while crude inventories decreased by 1.7 million barrels.

The market peaked at $55 a barrel in January as cuts got under way, but has struggled since, and closed Monday at $48.29 a barrel, barely changed from the end of November, when OPEC agreed with nonmembers to cut 1.8 million barrels a day in supply. "But then, we saw several pullbacks", said Michael Tran, director of global energy strategy at RBC Capital Markets.

Meanwhile, the EIA has reported that shale production in the US would reach an all-time high in July, at 5.475 million bpd and adding an additional rig to bring the total rig count to 719, continuing the twenty-two-week streak.

The IEA said in a separate report earlier Wednesday it expected growth in non-OPEC supply to outpace demand growth next year.

Last month, Iran exported about 1.1 million bpd to Europe including Turkey, nearly reaching pre-sanction levels and only slightly below the 1.2 million bpd supplied to Asia, the source said.

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Benchmark Brent crude settled 43 cents higher at $48.72 a barrel while US light crude settled up 38 cents to $46.46 a barrel. This upward adjustment was mainly due to the downward revision in non-OPEC supply as world oil demand remained unchanged.

OPEC and 11 rival exporters including Russian Federation have agreed toextend an existing deal to limit supply by 1.8 million bpd toMarch 2018, in order to cut global inventory levels.

And it was being observed, "despite the very high overall conformity to the production adjustments in the first four months of 2017", OPEC added.

The pullback in hedging was driven by rising service costs and expectations that prices would continue to rally after the Organization of the Petroleum Exporting Countries extended those cuts in May, analysts said.

Adding to the supply surplus is rising US production from shale drillers that has pushed USA output up by 10 percent over the previous year to 9.3 million bpd, not far below levels by top exporter Saudi Arabia, Reuters reported. For parties to the agreement, Russia's production during the second half of the year should fall by about 130,000 bsteels per day.

The report also noted that oil stocks in industrialized nations fell in April but are still 251 million barrels above the five-year average. In short, whenever oil demand rises and prices go up, it will be met by increased supply from the US.

The OPEC-led effort established a floor under crude oil prices during the first quarter of around $50 per barrel, though that has emerged recently as a ceiling because of production gains from the United States, with some OPEC members exempt from the agreement and even some operating within the multilateral arrangement.

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