BRUSSELS (Reuters) - Strong demand should start to cut into an oil glut around the end of this year, even as new Iranian supplies enter the market and doubts persist over whether major oil producers will reduce output, BP’s (BP.L) chief economist said on Wednesday.
But a stock overhang could still linger for at least a year.
Oil LCOc1 prices dropped to their lowest since 2003 last month under the pressure of a supply surplus of around 1 million barrels per day (bpd).
Saudi Oil Minister Ali Al-Naimi has ruled out imminent OPEC production cuts, although he said on Tuesday he was confident more nations would join a pact to freeze output.
Fellow OPEC member, Iran, meanwhile, is eager to increase output after sanctions were lifted.
BP’s Spencer Dale said he could not predict what OPEC and other major producers would do and said promised freezes had come from nations unlikely to increase output anyway.
“What is clear, is the oil market is behaving like any market. Prices are falling quite sharply and, as a response, demand is growing quite fast. Last year, global oil demand grew by twice its 10-year average,” he said.
Demand growth, although probably not as strong as last year, would continue, he said, while new supplies, especially from U.S. tight oil - around half a million bpd below its peak - contract.
“Even allowing for Iranian supply, I see flat to falling global supplies this year and so I think you’ll see a big swing in the market. By the end of this year, the market moves closer into balance,” he said.
“There will still be a highly significant stock overhang,” he added, which could take a year or more to disappear.
BP also for the long term to 2035 predicts rising oil demand as the number of vehicles outside the developed world triples.
It has previously underestimated renewable sources, such as wind and solar, while over-estimating nuclear and biofuels. Overall, it expects non-fossil fuel to grow by around 6.5 percent.
That is more than any other energy source, although its share stays below 10 percent of the mix, as the EU Emissions Trading System (ETS), which BP says it supports, remains too weak to drive a faster transition to lower carbon sources.
BP foresees a 20 percent rise in planet-warming emissions by 2035, or by 10 percent in its lower carbon scenario, which assumes a carbon price of $100 per tonne.
That compares with below five euros per tonne CFI2Zc1 at present on the over-supplied ETS.
Editing by Susan Thomas