IEA: Oil Market Remains Calm Despite Geopolitical Backdrop

The International Energy Agency’s (IEA) May oil market report observed that despite the difficult geopolitical situation and other supply problems, oil prices were little changed from a month earlier. Noted was that ongoing geopolitical concerns around Libya, Iran, and Venezuela had been joined by attacks on shipping off Fujairah and on two pumping stations in Saudi Arabia. But at the time of the report’s writing there were no disruptions to oil sup- plies and prices remained little changed.

IEA was monitoring the situation, particularly in view of the proximity of Fujairah to the strategically vital Strait of Hormuz. The agency was also monitoring the impact of the contamination of Russian crude oil passing through the 1.4-MMbbld Druzhba pipeline system. That issue is expected to be resolved in due course, eased by commercial and government stock draws by Russia’s customers. One consequence could be a loss of confidence in the quality of the crude flows resulting in a search, where feasible, for alternative supplies that could intensify price pressures for heavy/medium sour crude oil.

Oil prices remained just above $70/bbl for Brent. The decision by the U.S. to cease the waiver program for buyers of Iran’s crude oil did see the international bench- mark briefly reach $75/bbl. “However, there have been clear and, in IEA’s view, very welcome signals from other producers that they will step in to replace Iran’s barrels, albeit gradually in response to requests from customers.

There is certainly scope for other producers to step up production, with our data showing that in April parties to the Vienna Agreement collectively produced 440,000 bbld less than they promised, with Saudi Arabia producing 500,000 bbld below its allocation.”

The agency reviewed there are quality issues for refiners used to processing Iranian barrels, and the fact that increases in output come at the cost of reducing the global spare capacity cushion. But IEA’s May oil report confirmed a modest offset to supply worries from the demand side.

The oil-growth estimate for 2019, little changed since the middle of last year, was cut in May by 90,000 bbld to 1.3 MMbbld. The reduction was mainly concentrated on weaker-than-expected demand for Brazil, China, Japan, South Korea, Nigeria, and elsewhere. That lower demand estimate is expected to be short-lived, however.

(SOURCE: The Weekly Propane Newsletter, June 3, 2019)