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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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The Oil Markets Are At A Confusing Crossroads


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, leave 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.”

Related: Will Big Oil Ever Win Back Investors’ Trust?

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?

Not only does the IEA not subscribe to peak supply, but it warns that peak demand may be far off as well. The “drivers of demand remain very powerful,” and consumption is set to continue to climb higher in the years ahead. Transportation will continue to grow, although at a slower pace as electric vehicles begin to take over. But surging petrochemical production and the consumption of plastics will push oil consumption to ever greater heights, the agency believes. Not only did peak supply never arrive, the IEA argues, but “[t]here is no peak in sight for demand either.”

Plenty of other analysts dispute this, but demand is at least set to grow in the short run. However, the sudden concerns over the health of the global economy, brought into stark relief this week by the worldwide selloff in equities, could spell trouble for the oil market. The warnings signs are in plain sight – rising interest rates, faltering data on exports and industrial activity, concerns about China’s economy, the U.S.-China trade war, dollar strength and emerging market currency trouble. Then, of course, there is higher oil prices to contend with.

Related: EIA: Market Tightens As Outages From Iran, Venezuela Pile Up

In the face of these headwinds, the IEA downgraded its forecast for oil demand growth by 110,000 bpd for both 2018 and 2019.

That leaves the oil market kind of at a confusing crossroads. Supply is likely adequate in the near-term, but low spare capacity leaves the world dangerously exposed. Iran’s exports will continue to fall; any additional outage could push prices higher.


The flip side of this coin is that demand looks shakier than it has at any point in recent years. Not only is demand is set to grow at a slower pace than expected, but if analysts are going to be wrong on the specific figures, they are likely going to be over-optimistic. The stock market selloff over the past week has raised a lot of alarm bells, with a growing number of market watchers worried about a forthcoming global recession and/or financial crisis.

By Nick Cunningham of Oilprice.com

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Leave a comment
  • Mamdouh G Salameh on October 14 2018 said:
    If you make a claim that Iran has lost 800,000 barrels a day (b/d) in exports, the onus is on you to prove it otherwise your claim will be depicted as false bordering on wishful thinking and day dreaming. Such false claims being made repeatedly on the pages of Oilprice.com raise question marks about the objectivity of the authors and the service.

    The IEA tends to come forward every now and then with pontifications on the oil and energy issues to ensure that the world doesn’t forget it as irrelevant. Its latest pontification on peak oil is a case in point. It stands to logic that if we have finite oil resources, then peak oil supply is inevitable at some point. However, peak oil could be delayed by a few years by the advances of technology such as the US shale revolution.

    The same logic applies to peak oil demand. Peak oil demand is very far into the future. There will be no post-oil era throughout the 21st century and probably far beyond. However, a deeper penetration of electric vehicles (EVs) into the global transport system might decelerate the rate of growth of global oil demand.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • citymoments on October 15 2018 said:
    With all due respect to the author, he overlooked too important factors in his analysis:

    1. He assumes oil like tap water, if you need more, just turn up the volume. With significant declining capital investments in E&P industry since 2015, all capitals chasing FANNG Stocks, how we can produce more oil ?

    2. He forgets that the oil price spike proceeded the GFC ten years ago, oil over $100 is needed to bring down the whole global economy to its knee.
  • Harris Barlow on October 16 2018 said:
    Electric vehicle sales in the US are rising, while overall vehicle sales are falling. Discuss.

Leave a comment

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