Record global debt levels pose a clear risk to oil demand, the International Energy Agency said, citing figures from the International Monetary Fund last week that showed the world is awash with a record $152 trillion in debt.
The IEA forecast global oil demand will grow at a rate of 1.2 million barrels per day in 2017, largely unchanged from 2016 and down from 2015’s five-year high of 1.79 million bpd.
Years of low interest rates and have encouraged sovereigns, corporates and individuals alike to load up on debt, which the IMF estimates is equivalent to 225 percent of total global economic activity.
Financial markets have generally shown that investors anticipate a long period of low inflation and low interest rates. However, the 45 percent rise in the price of oil this year means energy is no longer the “overwhelmingly deflationary” influence it was as recently as a year ago, the IEA said.
“If one believes futures prices, oil could continue to act as an inflationary pressure. Assuming the majority of other global price pressures remain deflationary, the current low inflation/low interest rate environment will most likely remain,” the IEA said in a monthly oil market report.
“If other costs start to reflect the potential oil-price upside, or at least lack of downside, then the status quo could rapidly change making incumbent debt levels a hugely restrictive expense,” the agency said.
In its Fiscal Monitor published on Oct. 5, the IMF said while debt profiles can vary from one country to another, the sheer size of the debt could set the stage for an unprecedented private deleveraging that could thwart a fragile economic recovery.
“Hence, achieving the IMF’s central 3.4 percent 2017 global economic growth forecast — that underpins the demand forecasts carried in this report — will not be clear sailing,” the IEA said. 
It said a massive oil glut may weigh on world markets deep into next year unless the OPEC producer cartel makes good on its promise to cut output.
The oil price has recovered steadily since OPEC said last month that it would reduce production.
“Even with tentative signs that bulging inventories are starting to decline, our supply-demand outlook suggests that the market — if left to its own devices — may remain in oversupply through the first half of next year,” the IEA said.
“If OPEC sticks to its new target, the market’s rebalancing could come faster,” it said.
Initially greeted with sKepticism among analysts, OPEC’s agreement to cut output has gained traction in the oil market, with the IEA noting that the oil price has risen by 15 percent since OPEC’s announcement on September 28.
Oil prices rose to their highest level in several months after Russian President Vladimir Putin said Monday that his country was ready to align with OPEC’s push to limit oil output.
“The waiting game is over,” the IEA said. “OPEC has effectively abandoned its free market policy set in train nearly two years ago.”
OPEC members have been pumping oil at record levels to gain market share over higher-cost rivals, in what the IEA called a “free-wheeling strategy.”
The Paris-based agency said that crude supply from OPEC’s 14 members stood at an all-time high in September.
The cost has been a dramatic fall in the oil price since 2014, causing acute financial pain for all producers, “even those with hefty financial reserves, such as Saudi Arabia,” the IEA said.
Producers lacking such deep pockets, like Nigeria, have been plunged into budgetary and foreign exchange crises.
But OPEC may finally be turning the page.
“Now with the market share war coming closer to an end, we can say that the worst for oil is behind us,” said Hussein Sayed, chief market strategist at FXTM, a brokerage.
At its September meeting, OPEC said it had agreed to cut its supply by up to 750,000 barrels per day to between 32.5 and 33 million barrels per day.
While the IEA did not make any predictions on the chances of OPEC following through on its pledge, its report implied that all oil price bets are off should OPEC fail to deliver.
A massive oil glut may weigh on world markets deep into next year unless the OPEC producer cartel makes good on its promise to cut output, the IEA said.
“Even with tentative signs that bulging inventories are starting to decline, our supply-demand outlook suggests that the market — if left to its own devices — may remain in oversupply through the first half of next year,” the IEA said.
“If OPEC sticks to its new target, the market’s rebalancing could come faster,” it said.

Source: Arab News