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Venezuela’s oil production collapse and the loss of Iranian barrels after the reimposition of U.S. sanctions could take 1.5 million barrels off the market by the end of 2019 from these countries alone.
The “scenario” from the International Energy Agency (IEA), in its latest monthly oil market report, assumes a loss from Iran similar to the previous round of sanctions on the OPEC country.
For Venezuela, the IEA sees “no respite” in the drastic drop in production that has worsened over the past two years as the country’s political and economic upheavals spill over into the energy sector.
RELATED: How US Withdrawal From Iran Nuclear Deal Affects Oil Prices
The production fall from Iran and OPEC peer Venezuela, and any further disruption, leave the oil market “vulnerable” to a further escalation in prices, the IEA said. Brent crude rose above $80 a barrel in recent weeks before retreating slightly.
“Potential losses from Venezuela and Iran could require others to produce more,” the IEA said, warning a “supply gap” could emerge should OPEC peers continue to pump at current levels.
The drop in Venezuela has already taken cuts well above the 1.8 million barrels per day (bbl/d) global producers, inside and outside the OPEC cartel, said they would target as part of a supply curbs deal that began in January 2017.
Energy ministers from OPEC and Russia will meet next week in Vienna to debate increasing production after coming under pressure from big consumer countries.
U.S. officials have quietly spoken to producers, widely assumed to have included Saudi Arabia, about raising output to prevent any further price spike triggered by a loss in Iranian barrels.
While the kingdom and Russia have debated an increase of 1 billion bbl/d there are questions over how any raises would be shared among producers and how quickly this would take place.
Saudi Arabia has enacted the largest share of cuts as the biggest producer within OPEC, but as one of the few holders of substantial spare production capacity it would also benefit the most from a big increase.
“It is possible that the very small number of countries with spare capacity beyond what can be activated quickly will have to go the extra mile,” the IEA said.
The IEA estimates Middle East OPEC countries could increase production quickly by about 1.1 million bbl/d. OPEC crude supply edged up 50,000 bbl/d in May to 31.7 million bbl/d as Saudi Arabia and Iraq offset falls from Venezuela.
Adequate supply will be important as demand growth remains robust at 1.4 million bbl/d this year, taking total consumption to 99.1 million bbl/d. For 2019, demand is expected to grow by 1.4 million bbl/d with the total surpassing 100 million bbl/d for the first time.
Global oil supply rose 276,000 bbl/d in May, to 98.7 million bbl/d, as non-OPEC output—led by the U.S.—rose further. Non-OPEC supply will grow by an upwardly revised 2 million bbl/d in 2018, easing slightly to 1.7 million bbl/d next year and compensating for any big losses elsewhere.
“The U.S. continues to dominate the expansion,” the IEA said, even as it noted that infrastructure and logistical constraints are likely to cap gains.
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