IEA Welcomes Increased Output From Saudi Arabia and Russia
“Such determination to ensure the steady supply of oil to world markets in the face of multiple challenges to stability is very welcome,” IEA said. “The prospect of higher supply might be thought to have sent oil prices down, but in fact WTI [West Texas Intermediate] prices have risen close to levels not seen since November 2014, and Brent prices have recently made a renewed attempt to reach $80/bbl. 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 agency adds that prices remaining relatively high reflects various supply concerns, some of which will endure for some time, namely output from Venezuela and Iran. IEA commented, “The clearly expressed determination of the United States to reduce Iran’s exports by as much as possible suggests that shipments could be reduced by significantly more than the 1.2 MMbbld seen in the previous round of sanctions. In June, Iran’s crude exports fell back by about 230,000 bbld, albeit from a relatively high level in May, as European purchases dropped by nearly 50%. Most of Iran’s oil goes to Asia, however, with China and India currently taking over 600,000 bbld each.”
“When you also consider that both China and India are exposed to Venezuela, importing respectively 250,000 bbld and 325,000 bbld, it is clear that the world’s second- and third-largest oil consumers could face major challenges in sourcing alternative compatible barrels.” IEA continued that the reemergence of Libya as a risk factor in global supply follows a series of attacks on key infrastructure that saw production plummet to about 500,000 bbld in July from close to the 1-MMbbld level
it is, comes at the expense of the world’s spare capacity cushion, which might be stretched to the limit. This vulnerability currently underpins oil prices and seems likely to continue doing so.”
The agency added that it sees no sign of higher production from elsewhere that might ease fears of market tightness. “Indeed, for this report, our overall growth outlook for non-OPEC production in 2018 has been reduced slightly to 1.97 MMbbld, although in turn our 2019 growth estimate shows a modest increase to 1.84 MMbbld.
One the demand side, although there are emerging signs of reduced economic confidence, and consumers are unhappy at higher prices, we retain our view that growth in 2018 will be 1.4 MMbbld, and about the same next year.” seen for about a year. “At the time of writing, the situation seemed to be improving, but we cannot know if stability will return. The fact that so much production is vulnerable is clearly a cause for concern. Incidentally, China receives nearly 140,000 bbld of oil from Libya.”
The agency outlined that two other supply disruptions are likely to be short-lived. In Alberta, 360,000 bbld of output from Syncrude’s heavy crude upgrading facility has been shut-in and North Sea production fell sharply in May by nearly 360,000 bbld due to summer maintenance and union strike action in Norway. In addition, Brazilian production growth so far in 2018 has been lower than expected. At the same time, refiners’ thirst for crude oil will remain high during the summer period before seasonal maintenance kicks in.
“Some of these supply issues are likely to be resolved, but the large number of disruptions reminds us of the pressure on global oil supply,” IEA wrote. “This will become an even bigger issue as rising production from the Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world’s spare capacity cushion, which might be stretched to the limit. This vulnerability currently underpins oil prices and seems likely to continue doing so.”
The agency added that it sees no sign of higher production from elsewhere that might ease fears of market tightness. “Indeed, for this report, our overall growth outlook for non-OPEC production in 2018 has been reduced slightly to 1.97 MMbbld, although in turn our 2019 growth estimate shows a modest increase to 1.84 MMbbld. One the demand side, although there are emerging signs of reduced economic confidence, and consumers are unhappy at higher prices, we retain our view that growth in 2018 will be 1.4 MMbbld, and about the same next year.”
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