World's oil cushion could be stretched to the limit, IEA warns

12th July 2018

By: Reuters

  

Font size: - +

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 (IEA) said on Thursday.

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 a day. Spare capacity in the Middle East in July was 1.6-million barrels a day, roughly 2% of global output.

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-million barrels a day, 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."

China and India, the world's second and third largest oil consumers, could face "major challenges" in finding alternative crude oil following the drop in Iranian and Venezuelan exports, the IEA said.

Edited by Reuters

Comments

The content you are trying to access is only available to subscribers.

If you are already a subscriber, you can Login Here.

If you are not a subscriber, you can subscribe now, by selecting one of the below options.

For more information or assistance, please contact us at subscriptions@creamermedia.co.za.

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION