WASHINGTON, Jan. 20 (UPI) -- The global market likely won't pull away from the supply side until at least 2017 as crude oil lingers in storage, the head of the EIA told U.S. lawmakers.
Crude oil prices have moved sharply lower since the start of 2016 as concerns about the health of the Chinese economy cast a shadow over expectations of global economic growth. Chinese growth in gross domestic product last year was its lowest in 25 years and while the U.S. economy is advancing, lower wages continue to drag on full-scale recovery.
Crude oil is lingering in storage as result of this sluggish demand. The U.S. Energy Information Administration in its latest report said commercial crude oil inventories for the week ending Jan. 8 increased by 200,000 barrels. While lower than previous weeks, stockpiles remain near 80-year highs.
"The excess of supply over demand has contributed to oil prices reaching the lowest monthly average level since mid‐2004," EIA Administrator Adam Sieminski testified before the U.S. Senate. "Inventories are forecast to continue rising in 2016, before the global oil market becomes more balanced in 2017."
That's slightly more pessimistic than the latest forecast from the Organization of Petroleum Exporting Countries, which said balance would return in the latter half of this year.
Sieminski said the first draw of global inventories isn't expected until the third quarter of 2017, which would mark 15 straight quarters of a build.
Higher U.S. oil production helped push the price of oil lower by mid-2014. Recent decisions from OPEC to maintain robust levels of output have contributed to the bear market for crude oil.
As of result of lower prices, energy companies are scaling back in their investments in exploration and production. Sieminski said U.S. oil production is expected to drop off steadily though most of 2017.
EIA expects Brent crude oil to average $40 per barrel for the year, with West Texas Intermediate, the U.S. benchmark for crude oil, selling at a $2 discount to Brent.