Global Oil & Gas: Opec and IEA diverge on world’s capacity cushion
As trade tensions and disruptions ripple through the market, Opec and the IEA disagree on the risks to supply. The global energy bodies parted ways on the expected impact of oil capacity risks caused by sanctions and production outages in Venezuela, Libya and elsewhere.
While the International Energy Agency’s monthly report projected that capacity could be “stretched to the limit “, Opec said rising supply, particularly from its rivals, will easily meet slowing global demand growth.
The prospect of tightened markets saw WTI prices spike as high as $74.77 a barrel in recent weeks, frustrating Opec’s efforts to moderate prices, announced following the group’s Vienna meeting at the end of June.
But this week global trade tensions, a revival of Libyan production and US assurances over Iran sanction waivers all forced WTI to tumble more than 5% on Wednesday, towards a dip under $70—its biggest one-day drop in two years.
Opec’s report on Wednesday projected growth in demand for oil in 2019 would slow from 1.65m barrels a day this year to just 1.45m b/d. This equals a total rise to 100.3m b/d in demand that would be easily covered by an expected increase in non-Opec supply of 2.1m b/d.
“Following the robust growth seen this year, oil market developments are expected to slightly moderate in 2019, with the world economy and global oil demand forecasts to grow slightly less,” Opec said in the report. “If the world economy performs better than expected, leading to higher growth in crude oil demand, Opec will continue to have sufficient supply to support oil market stability,” Opec said.
The report noted that group production increased by 173,000 b/d to 32.33 million b/d in June, with Saudi Arabia making the largest monthly contribution increase at 405,000 b/d, and Libya’s input plummeting 254,300 b/d.
Devil in the detail
The IEA’s report on Thursday projected growth in demand of 1.4m b/d in 2019, to 100.5m b/d, but said the market will grow tighter as supply shocks test the major producers.
“We see no sign of higher production from elsewhere that might ease fears of market tightness. Indeed, our overall growth outlook for non-OPEC production in 2018 has been reduced slightly to 1.97 mb/d,” wrote the IEA. “[V]ulnerability currently underpins oil prices and seems likely to continue doing so. We see no sign of higher production from elsewhere that might ease fears of market tightness,” it said.
The Paris-based agency pointed to declining Iranian exports, which have already fallen as much as 50% as US sanctions deter buyers. It said Venezuela’s falling 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% year-on-year.
Saudi Arabia’s spare production capacity could dwindle to “an unprecedented level below 1 million barrels a day,” if the Saudis raise production to a record 11 million barrels a day next month, as they’ve indicated they might, the IEA predicted.
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