The IEA Thinks the Oil Glut Problem Is Getting Worse

Oil prices plunged more than 3 percent today, but it wasn’t OPEC’s increasingly flimsy production cut coalition that had traders so skittish. Rather, it was the International Energy Agency’s (IEA) new report that suggests that American oil supplies are going to exacerbate the problem producers are contending with in the market today: the global glut of crude. The FT reports:

The IEA expects global demand will increase by 1.4m barrels a day next year — up from 1.3m b/d in 2017 — as China and India take total consumption above 100m b/d for the first time in the second half of the year.

But this increase in demand is set to be outpaced by growth in supply. Total non-Opec production in 2018, led by the US, is set to rise by 1.5m b/d — or more than double the rate of growth this year.

The upshot of all of this is as obvious as it will be disheartening to petrostates: the oil market will swing further into oversupply next year. This change is being driven by producers outside of OPEC, but it’s the United States that is expected to be pulling most of that weight, as the IEA projects it will supply more than half of the extra 1.5 million barrels per day that non-OPEC producers will be upping their output by next year.

And if that wasn’t bad enough for OPEC and its ilk, consider that there’s a very real possibility that the United States shale industry could outperform even the IEA’s bullish expectations. “Such is the dynamism of this extraordinary, very diverse industry it is possible that growth will be faster,” the IEA notes.

This is the new oil reality, and it’s not a comfortable place for the old guard. For upstart U.S. shale producers, however, it’s an opportunity to prove their mettle by continuing to outperform expectations even as prices fall well below $50 per barrel. Frackers are proving they can exist and even thrive in this new price environment—how will petrostates hold up?