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Global oil glut set to continue despite efforts to prop up price

The world’s oil glut is likely to persist next year in a blow to efforts by major producers to shore up the oil price by cutting output, according to a leading energy authority.

Growth in oil supply will outstrip growth in demand during 2018, driven by increasing production from US shale and other countries outside Opec, the International Energy Agency (IEA) said.

The watchdog said its first forecast for 2018 made “sobering reading for those producers looking to restrain supply”.

Oil prices have fallen by about 10% since Opec and non-member countries including Russia recently agreed to extend production cuts until the end of March 2018. The deal was meant to prop up prices, but markets have been unimpressed by the continued curbs.

The price of a barrel of oil fell further to $47.12 on Wednesday after new data from the American Petroleum Institute showed US crude stocks had risen 2.8m barrels in the week to 9 June. They had been expected to fall by a similar amount.

The IEA has revised its forecast upwards for US oil production this year, and said Brazil and Canada were also expected “to make further gains”. As a result, despite the Opec deal, oil stocks might not fall to the cartel’s desired level “until close to the expiry of the agreement in March 2018”, the agency said.

“‘Whatever it takes’ might be the mantra, but the current form of ‘whatever’ is not having as quick an impact as expected,” the IEA said in a reference to Saudi Arabia’s promise to do “whatever it takes” to rebalance oil supply and demand.

Efforts to combat the oil glut have not been helped by figures this week that showed Opec as a whole increased production in May because of higher output by Nigeria and Libya, which are not covered by the recent cuts deal.

However, the big problem is the US and the speed at which it is adding new oil rigs. “It’s a huge resource, it’s changed everything,” said Gary N Ross, global head of oil at energy analysts Pira, of US shale.

The number of US rigs has climbed to 927, according to the oil services firm Baker Hughes, up from 414 this time last year. The rise has been driven by the oil price climbing back up after an initial deal by Opec and allies last year to cut productionby 1.8m barrels of oil a day from January 2017.

Ross said surplus oil stocks were being drawn down, “but not at the rate Opec would like to see” because of US production. He said he believed the price of international benchmark Brent crude would have to drop to $45 a barrel before US rig growth slowed.

The analyst also said that the cartel should have “done more” at its meeting last month, and added that he thought it was in for a period of “perpetual [production] cuts”.