The oil market is “adequately supplied for now,” but the supply losses from Venezuela and Iran leave the market suffering from “strain,” according to a new report from the International Energy Agency (IEA). The IEA noted that global oil production increased by 1.4 million barrels per day (mb/d) on a net basis since May, which helped lead to an inventory build at an average rate of 0.5 mb/d during the second quarter and likely the third quarter as well. As a result of a sizable stockpile of oil in storage, and these higher levels of production, the oil market is not in danger of shortages at the moment.
However, that has come at the expense of spare capacity, which is already down to only 2 percent of global demand, “with further reductions likely to come,” the IEA warned. “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.” Iran has already lost around 800,000 bpd in exports, and the disruptions are set to continue over the next month at least with U.S. sanctions taking effect in November. Also, the “ever-present threat of supply disruptions” from Libya, combined with the ongoing losses in Venezuela, leaves the oil market vulnerable.
Taking a step back, the IEA paused to note the historic nature of today’s oil market. Both supply and demand are closing in on the 100-million-barrel-per-day mark for the first time. The agency used the opportunity to take a swipe at those who warned about peak oil supply. “Fifteen years ago, forecasts of peak supply were all the rage, with production from non-OPEC countries supposed to have started declining by now,” the IEA said. “In fact, production has surged, led by the US shale revolution, and supported by big increases in Brazil, Canada and elsewhere. In future, a lot of potential supply could come to the market from places like Iran, Iraq, Libya, Nigeria and Venezuela, if their various challenges can be overcome.”
Global production has climbed significantly over the last decade or so, led by the U.S. shale revolution, but it seems a little presumptuous to feel confident about the future of supply when it rests on Iran, Iraq, Libya, Nigeria and Venezuela, as if their “various challenges” can so easily “be overcome.” When has it ever been the case that such serious above-ground challenges can simply be overcome, just because the market wants their oil? Oilprice.com
