The International Energy Agency (IEA) has said that a rise in global oil production, led by the US, is likely to outpace growth in demand this year.
It raised its forecast for oil demand growth in 2018 to 1.4 million barrels per day, from a previous projection of 1.3 million bpd in its monthly market report.
According to the report, oil demand grew at a rate of 1.6 million bpd in 2017 and in 2018, fast-rising production in non-OPEC countries, led by the US, is likely to grow by more than demand.
The Paris-based agency added: "For now, the upward momentum that drove the price of Brent crude oil to $70/bbl has stalled; partly due to investors taking profits, but also as part of the corrections we have seen recently in many markets. Most importantly, the underlying oil market fundamentals in the early part of 2018 look less supportive for prices."
Second wave of growth
The energy body said that in just three months to November, US crude output increased by a colossal 846 kb/d, and will soon overtake that of Saudi Arabia. By the end of this year, it might also overtake Russia to become the global leader.
It added: "All the indicators that suggest continued fast growth in the US are in perfect alignment; rising prices leading, after a few months, to more drilling, more completions, more production, and more hedging.
"In early 2018, the situation is reminiscent of the first wave of US shale growth that, riding the tide of high oil prices in the early years of this decade, made big gains in terms of market share and eventually in 2014 forced a historic change of policy by leading producers.
"Today, having cut costs dramatically, US producers are enjoying a second wave of growth so extraordinary that in 2018 their increase in liquids production could equal global demand growth."
Sobering for other producers
The Organization of the Petroleum Exporting Countries, along with other exporters such as Russia, have agreed to maintain a joint restriction on crude supply for a second year running in 2018, to force inventories to drain and support prices.
The IEA said the US growth is a sobering thought for other producers currently sitting on shut-in production capacity and facing a renewed challenge to their market share. Another sobering thought is that it is not just a matter of production: trade patterns are changing.
It said: "Recently we read of a shipment of condensate from the US to the UAE. Such a development would have seemed incredible a few years ago, now it looks like the shape of things to come.
"The components of the oil market balance are dynamic and a lot can change in the next few months: the deteriorating situation in Venezuela is one obvious candidate, and the apparent buoyancy of the global economy could deliver higher demand growth than we currently anticipate.
"As a result, prices could be maintained at recent levels even as US production rises. If so, most producers will be happy, but if not, history might be repeating itself."