Markets

Opec ... easing supply cuts

Opec ... easing supply cuts

World’s oil cushion could be stretched

LONDON

The world’s oil supply cushion could be stretched to the limit due to prolonged outages, supporting prices and threatening demand growth, the International Energy Agency said.

The expected drop in Iranian crude exports this year due to renewed US sanctions, coupled with a decline in Venezuela’s production and outages in Libya, Canada and the North Sea have driven oil prices to their highest since 2014 in recent weeks.

Opec and other key producers including Russia responded to the tightness by easing a supply-cut agreement, with Saudi Arabia vowing to support the market as US President Donald Trump accused the group of pushing prices higher.

The Paris-based IEA said in its monthly Oil Markets Report that there were already "very welcome" signs that output from leading producers had been boosted and may reach a record.

The global energy watchdog however said the disruptions underscored the pressure on global supplies as the world’s spare production capacity cushion "might be stretched to the limit".

Spare capacity refers to a producer’s ability to ramp up production in a relatively short time. Much of it is located in the Middle East.

The IEA said Opec crude production in June reached a four-month high of 31.87 million barrels per day. Spare capacity in the Middle East in July was 1.6 mbpd, roughly 2 per cent of global output.

As US sanctions on Iran are expected to "hit hard" in the fourth quarter of the year, Saudi Arabia could further ramp up output, which would cut the kingdom’s spare capacity to an unprecedented level below 1 mbpd, the IEA said.

Non-Opec production including from surging US shale also continued to rise, but the IEA said that might not be enough to assuage concerns.

"This vulnerability currently underpins oil prices and seems likely to continue doing so. We see no sign of higher production from elsewhere that might ease fears of market tightness," it said.

The IEA maintained its 2018 oil demand growth forecast at 1.4 mbpd, but warned that higher prices could dampen consumption.

"Higher prices are prolonging the fears of consumers everywhere that their economies will be damaged. In turn, this could have a marked impact on oil demand growth."

The IEA said Iran’s crude exports could be reduced by significantly more than the 1.2 mbpd seen in the previous round of international sanctions. Iran exports roughly 2.5 mbpd, most of which goes to Asia.






More Stories



Tags