Although the U.S. waivers for Iran’s key oil customers were a relief to the oil market, the world’s economy is still very fragile and skimpy overall spare capacity remains an issue, Fatih Birol, Executive Director of the International Energy Agency (IEA), told Reuters on Tuesday.
The U.S. decision to grant waivers to eight Iranian oil buyers—including the biggest customers China and India—surprised some of the oil market players, but resulted in a $20 oil price drop and a well-supplied market, Birol told Reuters on the sidelines of an energy conference in Oslo today.
“But the global economy is still going through a very difficult time and is very fragile and, as a result of the increase in production, we have very thin production capacity left in the world, in a world which is becoming more dangerous,” Birol noted.
IEA and Birol have been warning for some time that the high oil prices from early October had started to hurt global demand.
Earlier this month, speaking about the state of the market and the precarious situation in Venezuela, Birol said that he hoped “prices do not rise again because this will not really be good news for the global economy which is very fragile.”
Prices haven’t yet risen because the oil market is currently concerned with a possible oversupply building. OPEC and its de facto leader Saudi Arabia have already started to hint that a new production cut may be in the works.
Just yesterday, IEA’s Birol urged oil producers to use ‘common sense’ because fresh cuts could have negative effects on the oil market.
“My appeal to all producers and consumers across the world is to have common sense in these difficult days,” Reuters quoted Birol as saying on Monday.
Despite the fact that the IEA itself sees a surplus next year, the agency doesn’t see the oversupply as a threat to the markets, because “such is the volatility of events that rising stocks should be welcomed as a form of insurance, rather than a threat,” the IEA said in its Oil Market Report last week.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.