Oil markets look “adequately supplied for now” after a big production increase in the last six months, but the industry is coming under strain, the International Energy Agency (IEA) said Oct. 12.
The IEA said in its monthly report that the world’s spare oil production capacity was down to 2% of global demand with further falls likely.
“This strain could be with us for some time and it will likely be accompanied by higher prices, however much we regret them and their potential negative impact on the global economy,” the Paris-based organization said.
Members of OPEC and other exporters such as Russia agreed in June to raise output as the market appeared increasingly tight.
The price of global benchmark Brent crude has risen from about $45 per barrel in June 2017 and peaked at over $85 this month on bullish bets by speculators.
OPEC, Russia and others such as U.S. shale companies had increased production sharply since May, the IEA said, raising global output by 1.4 million barrels per day (MMbbl/d).
Overall, OPEC had boosted production by 735,000 bbl/d since May as Middle East Gulf producers such as Saudi Arabia and the UAE more than compensated for declining output in Venezuela and Iran, which is facing U.S. sanctions from next month.
Supply from Iran during September dropped to a two-and-a-half year low, the IEA said, as customers continued to cut back in the run-up to new sanctions, which start on Nov. 4.
Iranian output fell to 3.45 MMbbl/d, the IEA said, down 180,000 bbl/d month-on-month. Iranian oil exports in September fell to 1.63 MMbbl/d, down 800,000 bbl/d from recent 2Q18 peaks, the agency estimated.
“The decline may deepen significantly ahead of U.S. sanctions—and subsequently as final cargoes are delivered,” said the IEA, which advises major oil consumers on energy policy.
But the outlook for world oil consumption is faltering, the IEA said as it cut its forecast of global oil demand growth by 0.11 MMbbl/d for both this year and next to 1.28 MMbbl/d and 1.36 MMbbl/d, respectively.
“This is due to a weaker economic outlook, trade concerns, higher oil prices,” the IEA said.
OECD commercial stocks rose by 15.7 MMbbl in August to 2.854 billion barrels, their highest level since February, on strong refinery output and liquefied petroleum gas restocking, the IEA said.
The IEA added that OECD inventories were likely to have risen by 43 MMbbl in the third quarter, the largest quarterly increase in stocks since the first quarter of 2016.
“The increase in net production from key suppliers since May of approximately 1.4 [MMbbl/d], led by Saudi Arabia, and the fact that oil stocks built by 0.5 [MMbbl/d] in 2Q18 and look likely to have done the same in 3Q18, lends weight to the argument that the oil market is adequately supplied for now,” the IEA said.
The United States has stepped up pressure on Tehran by announcing an end to the waivers that have allowed major oil importing nations to buy from Iran, in a move that raises questions about the ability of other oil producers to fill the gap.
In the week since our last edition of What’s Affecting Oil Prices, Brent rose $0.24/bbl last week to average $71.62/bbl while WTI fell $0.29/bbl last week to average $63.80/bbl.
UPDATED: Oil topped $74 a barrel on April 22, the highest since November, with the United States set to announce a further clampdown on Iranian oil exports, tightening global supplies.