International oil market heads towards ‘smooth rebalancing’

After long years of punishingly low oil prices, the global oil market is moving closer to reaching a healthy balance between supply and demand, Opec said on Thursday.

In its monthly oil market report, the Opec said there were "growing indications that the oil market is heading smoothly toward rebalancing."

Prices were being buoyed by lower crude oil stocks, healthy demand and geopolitical tensions, the cartel said.

Oil prices have risen in recent months, after Opec and a clutch of countries outside the cartel struck a landmark deal at the end of 2016 to cut back production to combat a global oil glut.

At a meeting in Vienna at the end of November, the oil-producing nations agreed to extend that deal until the end of 2018.

As a result, oil prices have recently moved above the $70 mark, after hitting a 10-year low of less than $30 in January 2016.

"In December, oil futures improved further to levels not seen since late 2014," Opec said.

The agreement to extend the cutbacks, "as well as supply turbulences in the North Sea buoyed the sustained gains" in futures prices, it wrote.

The Forties pipeline system, which normally carries 40pc of UK oil and gas production in the North Sea, was recently hit by a cracked pipe.

In its report, Opec raised its estimate for global oil demand growth for last year, and said oil output would also continue to expand.

The cartel said it expects world oil demand to have averaged 96.99mbpd last year, an upward revision that was "broadly a result of better-than-expected data for Europe and China."

For 2018, global oil consumption was projected to reach 98.51mbpd.

On the supply side, Opec said that the world oil supply was projected to have expanded to an average 57.79mbpd in 2017. And it would grow further to 58.94mbpd in 2018.

"The US remains the key driver of non-Opec supply growth," as shale producers in the US ramp up production, Opec said.

In a monthly report on Thursday, the Opec said outside producers would boost supply by 1.15mbpd this year, up from 990,000bpd expected previously.

"Higher oil prices are bringing more supply to the market, particularly in North America and specifically tight oil," Opec said in the report, using another term for shale.

Opec, Russia and several other non-Opec producers began to cut supply a year ago to get rid of a global glut of crude that had built up since 2014. They have extended the pact until the end of 2018.