Oil glut worsens as Opec market-share battle just beginning

A global oil glut is building as Opec kingpin Saudi Arabia pumps near record highs in an attempt to win a market-share battle against stubbornly resistant US shale production, the International Energy Agency (IEA) said on Wednesday.

The West's energy watchdog said in a monthly report that although higher-than-expected oil demand was helping to ease the glut, growth in global oil consumption was far from spectacular.

As a result, signs are emerging that the crude oil glut is shifting into refined products markets, which could make a recent rally in oil prices unsustainable.

"Despite tentatively bullish signals in the United States, and barring any unforeseen disruption elsewhere, the market's short-term fundamentals still look relatively loose," said the IEA, which coordinates energy policies of industrial nations.

Global oil production exceeds demand by around 2 million barrels per day, or over 2 percent, following spectacular growth in US shale production and Opec's decision last year not to curtail output in a bid to force higher-cost US producers to cut theirs.

As a result, benchmark Brent oil prices more than halved from June 2014 to $46 per barrel in January. They have since rebounded to around $65, however, on fears of a steep slowdown in US production growth.

"In the supposed standoff between Opec and US light tight oil (LTO), LTO appears to have blinked. Following months of cost cutting and a 60 percent plunge in the US rig count, the relentless rise in US supply seems to be finally abating," the IEA said.

But it added that the recent oil price rebound was giving US producers a new lease on life.

"Several large LTO producers have been boasting of achieving large reductions in production costs in recent weeks. At the same time, producer hedging has reportedly gone steeply up, as companies took advantage of the rally to lock in profits," the IEA said.

"It would thus be premature to suggest that Opec has won the battle for market share. The battle, rather, has just started." Despite a certain slowdown in US oil output growth, global crude supply was up by a staggering 3.2 million bpd in April year-on-year, the IEA said.

Beyond high Opec production, the IEA cited strong performance of non-OPEC countries including Russia, Brazil, China, Vietnam and Malaysia.