Two years ago, the global oil market was in a precarious position. As a result of supply heavily outpacing demand between 2014 and 2016, global oil inventories expanded rapidly. OECD commercial inventories measured by the difference to the latest five-year average – a key indicator of the health of the oil market – reached a record high of more than 400 mb in July 2016, clearly reflecting a huge excess of supply.

In response to this critical situation, OPEC and 10 non-OPEC oil producing countries decided that a response was urgently necessary. Under the umbrella of the ‘Declaration of Cooperation’ (DoC) of December 2016, participating countries undertook voluntary productions adjustments aimed at reducing the oil stock overhang, and accelerating the rebalance between supply and demand.
The DoC has had a transformative impact on the oil market. Since it became effective, total OECD commercial stocks in absolute terms have dropped by 213 mb since January 2017.

Within the components, crude inventories fell by143 mb and refined products witnessed a drop of 70 mb over the entire period. Indeed, in 2017, the stocks draw amounted to 196 mb/d. In 2018, the picture has been mixed, with crude stocks dropping by 36 mb, while those for refined products have increased by 18 mb.

Stock draws in 2017 also benefitted from a surge in world oil demand, which outpaced global supply by 0.87 mb/d. In 2018, there has been a slowdown in the OECD commercial stock draw, which could be attributed to the narrowing gap between world oil demand and supply, which indicates a marginal deficit of approximately 0.05 mb/d, resulting in a balanced market by the end of the year.

The adjustments in production of the participating countries by 0.8 mb/d y-o-y in 2017, and 0.5 mb/d in the first three quarters of 2018, compared to the same period a year earlier, contributed to elimination of the excess overhang in OECD commercial stocks over the last two years (Graph 2). This was particularly apparent in crude oil stocks.

Although the oil market has reached a balance now, the forecasts for 2019 for non-OPEC supply growth indicate higher volumes outpacing the expansion in world oil demand, leading to widening excess supply in the market. The recent downward revision to the global economic growth forecast and associated uncertainties confirms the emerging pressure on oil demand observed in recent months.

OPEC and participating non-OPEC countries in the DoC will next meet at the beginning of December to assess market developments and consider how best to continue their cooperation over the coming period. The DoC partners remain unwaveringly focused on supporting oil market stability for the benefit consumers, producers, and the industry, as well as the world economy, at large.
Source: OPEC