OPEC’s Gulf members may need to pump almost as much crude as they can to cover swelling supply losses from Venezuela to Iran and beyond, the International Energy Agency said.
Saudi Arabia might have to draw harder than ever before on its spare production capacity as a spiralling economic crisis in Venezuela, renewed U.S. sanctions on Iran and disruptions in Libya strain global markets, the agency predicted.
“Rising production from Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world’s spare-capacity cushion, which might be stretched to the limit,” the Paris-based IEA said in its monthly report. “This vulnerability currently underpins oil prices and seems likely to continue doing so.”
Facing intense political pressure from U.S. President Donald Trump, Saudi Arabia pledged last month that the kingdom and its allies would increase oil supplies to prevent rallying prices from hurting the global economy. Yet as Venezuela continues to unravel and Trump unleashes aggressive sanctions against Iran, fears that the supply boost won’t be enough are keeping prices near the highest in three years.
Venezuela’s total output capacity could sink below 1 million barrels a day by the end of the year, bringing its overall loss in 2018 to more than 40 per cent, the IEA said. Iran has already seen its shipments to Europe fall almost 50 per cent as U.S. penalties deter buyers, and the country’s total exports could slump even more, according to the agency, which advises most of the world’s major economies.
As supply losses in the Organization of Petroleum Exporting Countries pile up, its biggest producer, Saudi Arabia, is trying to plug the gap. The kingdom bolstered output by the most in three years last month, increasing by 430,000 barrels a day to 10.46 million a day, according to the agency.
If the Saudis raise production to a record 11 million barrels a day next month, as they’ve indicated they might, it would be the kingdom’s biggest increase over a two-month period since 2011, the IEA said.
Raising output further could shrink the country’s spare production capacity — the crude left idle for emergencies — to “an unprecedented level below 1 million barrels a day,” the IEA predicted. That would leave barely 1 per cent of global supply to compensate for any additional outages.
World markets remain vulnerable as the Trump administration seeks to choke off Iranian crude exports after the president quit an accord that polices the Islamic Republic’s nuclear program. U.S. sanctions look set to cut Iranian shipments by more than 1.2 million barrels a day, the IEA said.
The agency, which oversees the release of emergency oil stockpiles held by importing nations, reiterated that it’s monitoring developments in case any action is required.
U.S. crude futures climbed above US$75 a barrel on July 3, the highest since late 2014, prompting criticism from Trump that OPEC should do more to moderate prices. Fuel costs have sparked protests in Brazil and Russia, and complaints from India.
The IEA report showed further signs that prices are taking a toll, with global demand growth slowing in the second quarter to just 900,000 barrels a day. However, the agency kept its annual consumption growth forecasts for this year and next unchanged.
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