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IEA Warns Of Looming Oil Market Deficit

Production outages and Iran and Venezuela will tip the global oil market into a shortage during the second quarter, the International Energy Agency said in the new edition of its monthly Oil Market Report.

This will happen against the background of steadily rising demand despite a slowdown during the last quarter of 2018, the agency said, adding that it had kept its 2019 global demand forecast unchanged from the last OMR at 1.4 million bpd.

The IEA said Venezuela’s oil production had stabilized around 1.2 million bpd before the massive power outage that hit the country earlier this week, noting this is the same amount as the one OPEC and its partners agreed to take off global markets in December in a bid to prop up prices.

While it did not say it expected Venezuelan’s oil production to grind to a halt, further decline is more or less a certainty. However, any serious market disruption should be limited because OPEC members—excluding U.S. sanctioned Ian and Venezuela—are sitting on some 2.8 million bpd in spare capacity. This, with two-thirds of it in Saudi Arabia, could be quickly brought back online to cover any shortages, especially of heavy crude. OPEC has cut mostly its heavy crude oil output. Related: Is This A Precursor For Peak Oil Demand?

Whether the cartel would be willing to do this, however, remains an open question in light of recent comments by the Saudi Energy Minister, who suggested the cuts might have to be extended beyond the April deadline to boost prices enough for the Kingdom’s comfort.

On the other hand, OPEC is likely to face the vocal opposition from the U.S. President as well as India and China if oil gets too expensive for importers’ comfort.

Speaking of importers, the IEA noted the U.S. has started buying a lot more crude from Russia to replace lost Venezuelan barrels. “As exports to the US have slumped following the imposition of sanctions, Russia has taken the opportunity to increase its shipments to the US from relatively modest levels to around 150 kb/d.”

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on March 15 2019 said:
    When it comes to the International Energy Agency (IEA), a lot of its utterances is chaff. So let us first sort out the chaff from the wheat.

    There is no outage in Iran since US sanctions have so far failed to cost Iran the loss of even a single barrel of oil. If the IEA claims otherwise, then let it name a single country in the world which has stopped buying Iranian crude altogether. The countries which account for 95% of Iranian oil exports, namely, China (35%), India (33%), the EU (20%) and Turkey (7%) not only haven’t reduced their purchases but in fact they have upped them. They will continue purchasing Iranian crude with or without waivers. Japan and South Korea accounting for the remaining 5% are still buying Iranian crude albeit with sanction waivers.

    Furthermore, the Trump administration has no alternative but to renew the sanction waivers it issued last year to the eight biggest buyers of Iranian crude when they expire in May or issue new ones for no other reason than to use them as a fig leaf to mask the fact that US sanctions have yet to cost Iran the loss of even a single barrel and the fact that the zero exports option is a bridge too far.

    The reason that oil prices have barely budged when sanctions were imposed on Venezuela is due to the fact that Venezuela’s oil production has already been declining for more than two years due to the economic collapse and years of mismanagement and underinvestment in the oil industry.

    Moreover, Venezuela’s exports to the US estimated at 500,000 barrels a day (b/d) are being redirected to India, Turkey and the EU so there is no loss of supply in the market.

    OPEC+ cuts and a strict adherence by OPEC members to the cuts and also Saudi Arabia’s steep cutting of its production and exports will most probably re-balance the global oil market by the end of the second quarter. If this didn’t happen by then, there is the possibility that the cuts could be extended until the end of the year or until the global oil market has become irrevocably balanced.

    This will push up oil prices beyond $80 a barrel but there will not be a supply deficit in the market.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • bob bobert on March 15 2019 said:
    Here we go again with the talk of a shortage, really????? We are and have been in a glut. Stop with the lies.....they are truly getting old.

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