The oil industry's massive supply and demand problem is about to get even worse

Global demand for oil will slow at a greater rate than first thought in 2017, according to the latest oil market update from the International Energy Agency, intensifying the oil industry's supply and demand imbalance.

The IEA's August update on the state of the oil markets showed that in 2017 that global demand will slow from the 1.4 million barrels per day previously expected to 1.2 million per day. The prognosis is a result of what the agency calls a "dimmer macroeconomic outlook."

The report says:

"Global oil demand growth is expected to slow from 1.4 mb/d in 2016 to 1.2 mb/d in 2017, as underlying support from low oil prices wanes. The 2017 forecast - though still above-trend - is 0.1 mb/d below our previous expectations due to a dimmer macroeconomic outlook. The 2016 outlook is unchanged from last month's Report."

August's Oil Market Report, which is one of the most watched monthly releases in the oil industry, argues that growth in demand has slowed recently, particularly in India, China, and the USA, and that this was a major contributor to the fall in oil prices in the last month or so.

While the world's eyes have been trained on the USA's ongoing presidential election and the UK's Brexit vote, oil has quietly slipped from more than $51 per barrel in early June, to just over $41 per barrel today, entering a new bear market.

Demand is waning, but supply has increased substantially over the course of the last month. The report says: "Global oil supply rose by about 0.8 mb/d in July, as both OPEC and non-OPEC production increased. Output was 215 kb/d lower than a year earlier, as declines from non-OPEC more than offset an 840 kb/d annual gain in total OPEC liquids. Non-OPEC production is forecast to drop by 0.9 mb/d this year before rebounding by 0.3 mb/d in 2017."

"The massive overhang of stocks is also keeping a lid on prices, with both newly produced and stored crude competing for market share in an increasingly volatile refinery margin environment,"the IEA added.

Supply growth was helped in the month by the return to the market of large amounts of Canadian oil as production in the country, which had been severely affected by huge wildfires in the country, returned to some semblance of normality.

Oil prices reacted negatively to the IEA's downgrade, with both benchmarks dropping sharply on the news. Here's how US WTI oil looked:

The oil industry's problems have intensified in recent weeks after Saudi Arabia, the most powerful oil-producing nation, ramped up production during July. The country said output increased by 123,000 barrels per day, which pushed overall production for July to 10.67 million barrels per day. This surpasses the previous record of 10.56 million per day from June last year.