OPEC member countries produced generous amounts of crude during July, causing a “glut” in the supply of oil, despite conflicts involving oil countries that have led to concerns of possible disruptions, the International Energy Agency (IEA) reports.
The cost of Brent crude on Aug. 12 fell to its lowest level since Nov. 8, 2013, and another benchmark, West Texas Intermediate, was also down. Meanwhile, OPEC output climbed to its highest level in five months, and the IEA slashed its estimates for the growth in demand for oil for 2014 and 2015. The IEA, based in Paris, advises 29 nations on energy policy.
“The IEA report knocked the market pretty hard today,” Bill Baruch, a senior market strategist at Iitrader.com in Chicago, told Bloomberg News. “Demand worry has really been moving the market.” He said only a major supply disruption could lift oil prices in this environment.
In its report, the IEA reduced its calculations for the growth of worldwide demand for oil by 180,000 barrels a day for 2014 and by 90,000 barrels a day in 2015. It said the yearly growth in fuel consumption fell to 700,000 barrels a day in the second quarter of 2014, the lowest since early 2012.
The agency said fighting in countries linked to oil production was putting the supply of crude “more at risk than ever,” yet oil producers seemed to be shrugging off these conflicts. “Despite armed conflict in Libya, Iraq and Ukraine,” it said, “the oil market today looks better supplied than expected, with an oil glut even reported in the Atlantic Basin.”
Oil production in Libya is fairly steady, a spokesman for Libya’s National Oil Co. said on Aug. 11. This comes despite continuing bloodshed between armed factions in the country’s two largest cities, Benghazi and Tripoli, the capital. In fact, the IEA said that during July, Libya’s output rose by 190,000 barrels per day to 430,000 barrels per day.
In Iraq, production in the northern Kurdish regions has remained largely unchanged, the IEA said, despite encroachments by the militant fighters of the Islamic State. And the agency said oil exports from southern Iraq were steady at near-record levels of 2.5 million barrels per day.
Then there is the fighting in eastern Ukraine between Russian-backed separatists and regular Ukrainian forces. The United States and the European Union have imposed strong sanctions on Russia, especially its oil sector, for its involvement in the conflict, but these measures haven’t affected oil output.
“Short-term supply disruptions do not seem on the cards,” the IEA report said, even as the sanctions are expected to reduce demand for Russian oil.
By Andy Tully of Oilprice.com
Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com