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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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The IEA Warns Of Another Oil Price War

The oil market has been on edge for a week now, entertaining the possibility of a new price war within the OPEC+ alliance, the International Energy Agency (IEA) said on Tuesday, adding that the current impasse is also threatening to derail the global economic recovery.

In June, global oil demand is estimated to have jumped by as much as 3.2 million barrels per day (bpd) to 96.8 million bpd, the agency said in its closely watched Oil Market Report for July.

For the rest of the year, oil demand will continue to rebound thanks to solid economic growth, rising vaccination rates, and easing of restrictions in many economies, the IEA said. 

Yet, the oil market is jittery because of the ongoing OPEC+ deadlock, with increased volatility that helps neither producers nor consumers, the agency noted.

“At the same time, the possibility of a market share battle, even if remote, is hanging over markets, as is the potential for high fuel prices to stoke inflation and damage a fragile economic recovery. The uncertainty over the potential global impact of the Covid-19 Delta variant in the coming months is also tempering sentiment,” the IEA’s monthly report says.

The already week-long stalemate means that until a compromise can be reached, OPEC+ will leave production quotas in August flat compared to July’s levels. This will surely tighten the market much more as global oil demand continues to rebound. The excess oil inventories in developed economies are already below historical averages, and without OPEC+ easing its production cuts, we could see a significantly tighter market with especially tight crude oil balances, the IEA said.

Oil prices at current or higher levels could incentivize electrification, but high prices could also slow down the economic recovery, especially in large emerging markets, the Paris-based agency said.

Prices at the pump jumped to a seven-year high in the United States. They are also rising across Europe, and reached all-time highs in India, the world’s third-largest crude oil importer, the IEA noted.

“Oil markets are likely to remain volatile until there is clarity on OPEC+ production policy. And volatility does not help ensure orderly and secure energy transitions – nor is it in the interest of either producers or consumers,” said the agency.  

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on July 13 2021 said:
    The IEA is wrong. There is no risk whatsoever of another oil price war as a result of the impasse at OPEC+. Saudi Arabia has no intention of engaging in a new price war and the UAE’s production isn’t that big to precipitate one. Moreover, the majority of OPEC+ members and allies are benefiting from relatively high crude oil prices because of their almost complete compliance with the production cuts.

    The market is aware that even if the UAE decides to open the taps, the maximum it could bring to the market is no more than 500,000 barrels a day (b/d). The global economy is capable of absorbing this volume with hardly any impact on prices. However, the UAE will only do that if it is planning to leave OPEC which I personally discount. Were it to do so is tantamount to an open warfare with Saudi Arabia which it can’t win.

    A continuation of the impasse will deprive the market of 2 million barrels of increased OPEC+ production leading to a further tightening of the market. And if OPEC+ does eventually reach a deal, prices will equally rise because this will show its great confidence in the fundamentals of the global oil market. Either way, OPEC+ and prices win.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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