IEA sees U.S. oil boom eroding OPEC market share, additional supply expected to outpace demand increase

Oil eased off 16-month high on Thursday, erasing earlier daily gains following the International Energy Agencys bearish first monthly report with forecasts for 2014. According to the agency, oil supply will outpace the increase in oil demand in 2014 as non-OPEC production will surge at the highest pace in 20 years.

On the New York Mercantile Exchange, West Texas Intermediate for August delivery traded at $105.41 per barrel at 13:32 GMT, down 1.04% on the day. Crude oil touched a 15-month high at $107.45 earlier in the day, while days low stood at $105.36. The American benchmarks weekly advance shrank to 2.2% so far.

Meanwhile on the ICE, Brent oil for August delivery traded at $108.27 per barrel at 13:32 GMT, marking a 0.23% daily loss. Prices held in range between a three-month high at $108.92 and low of $107.95. The European benchmark trimmed its weekly advance to 0.66% following todays loss. Brent has lost around 2% this year as struggling with recession Europe, slowing expansion in China and still fragile economic recovery in the U.S. limited fuel consumption.

According to IEAs report, world oil consumption will climb by 1.2 million barrels per day next year, up form 2013s 930 000 bpd increase. Supply outside the OPEC group will jump by 1.3 million bpd, most in two decades, due to new technologies which allowed new fields in the U.S. and Canada to be exploited. This however will erode OPECs market share.

Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said for Bloomberg: “It’s a balanced outlook for the next year, and growth is likely to increase. The million-dollar question is what is going on with non-OPEC supply.”

OPEC pumped out 30.61 million bpd in June with disruptions in Libya, Iraq and Nigeria cutting the groups production by 370 000 bpd. The IEA said the need for OPEC crude will shrink to 29.4 million barrels per day in 2014, down from 2013s 29.6 million bpd and 1.2 million per day below the groups June quota.

Meanwhile, increased output from other countries apart from the U.S. and Canada is also expected to offset supply disruptions elsewhere. In 2014, North American supply is expected to surge by nearly 1 million barrels per day. Major projects in Brazil, West Chirag in Azerbaijan, the Kashagan field in Kazakhstan and new fields in the North Sea are expected to further boost global output. The IEA said: “Production could prove even higher than forecast in Russia, the United States, Canada, and Brazil, especially if prices remain at or above current levels.”

On the demand side, worlds second biggest consumer, China, is expected to show the highest demand increase, adding 385 000 bpd, or 3.9%, to 10.3 million bpd. The rest of nonOECD Asia should add 325 000 bpd and the Middle Easts demand should gain 255 000 barrels per day. Top oil consumer, the U.S., will post a 0.1% drop in demand to 18.6 million bpd in 2014.

“While demand in the OECD region is expected to contract, it will do so at a much slower pace than has been the case in the last few years since the 2008 financial crisis, edging down by 0.4 percent in 2014 compared to the 0.8 percent drop of 2013.” the EIA said.