Oil prices have soared above $80 a barrel over the last few weeks, hitting their highest level in seven years, as demand outstripped supply. The momentum behind the price rally has even tempted some forecasters to predict a return to $100-a-barrel oil, although not everyone shares this view.
“The world oil market remains tight by all measures, but a reprieve from the price rally could be on the horizon,” the IEA said in its closely watched monthly report.
“Contrary to hopes expressed in Glasgow at COP26 this is not because demand is declining, but rather due to rising oil supplies.”
Demand for oil is also strengthening because of robust gasoline consumption and increasing international travel as more countries re-open their borders, the influential energy agency said.
Higher oil prices, weaker industrial activity and an alarming resurgence of Covid-19 infections in Europe, however, will likely temper price rises, the group added.
The IEA kept its forecast for oil demand growth largely unchanged from last month at 5.5 million barrels per day for 2021 and 3.4 million barrels per day for 2022.
“So, OPEC+ is continuing to unwind their cuts but we are also seeing higher supplies from other producers outside of the group and so we’re seeing that the market is moving closer to balance.”
The IEA said it expected a rise of 1.5 million barrels per day in global oil output in the final three months of the year, with the U.S. alone accounting for 400,000 barrels of this growth.
OPEC kingpin Saudi Arabia and non-OPEC leader Russia are each set to account for 330,000 barrels per day of the increase, in line with their OPEC+ targets. By December, Saudi Arabia and Russia are each set to pump over 10 million barrels per day for the first time since April last year, the IEA said.
The U.S. is forecast to account for 60% of non-OPEC+ supply gains next year, now forecast at 1.9 million barrels per day, although the country is not expected to return to pre-Covid levels until the end of 2022.
The IEA said that while stronger oil prices had prompted some U.S. producers to ratchet up production, the same could not be said for OPEC+.
The energy alliance decided to keep production policy steady in early November, raising output 400,000 bpd, defying pressure from major consumers for a higher increase to help cool the market.
The oil producer group is set to meet again on Dec. 2.
Read More: IEA sees a potential reprieve as U.S. production rises