OPEC and Russia may have to open their oil taps to plug a supply gap
Paris (AFP) - An oil production shortfall in Iran and Venezuela may force OPEC and Russia to decide later this month to open their taps, the International Energy Agency said Wednesday.
Even if the supply gap, triggered by the return of US sanctions on Iran and a major political crisis in Venezuela, is plugged, the oil market will likely remain vulnerable to disruption next year, the IEA warned.
US President Donald Trump in May announced he would pull out of a landmark 2015 nuclear agreement with Iran that had eased sanctions on the oil giant.
Pumped further by global trade war fears, oil prices have since surged to multi-year highs, only to then fall back again somewhat, the IEA said.
Prices peaked in late May, scraping the $80 per barrel level on the Brent futures contract and $72.24 on the West Texas Intermediate.
Barely recovered from the roller coaster ride of recent weeks, traders are holding their breath for the June 22 meeting of oil ministers from OPEC member states in Vienna.
OPEC and Russia decided together in 2016 to cut their supply in order to push prices up following a crash in prices induced by a global crude production glut.
But the Paris-based IEA, echoing statements from oil producers as well as analyst comment in recent weeks, said there may be a change to the so-called Vienna agreement.
OPEC flows were already higher in May, led by Saudi Arabia, the IEA said, adding that the oil kingpin was still in compliance with the Vienna deal caps.
Citing “people briefed on the discussions”, Bloomberg on Wednesday said Saudi Arabia has floated several oil output hike plans to fellow cartel members.
On the sidelines of the opening match of the World Cup Friday, President Vladimir Putin and Saudi Crown Prince Mohammad bin Salman will meet to discuss oil policy, Bloomberg added.
- Lessons from history -
However, as previous OPEC meetings have shown, it is impossible to accurately predict the outcome of the high stakes negotiations, with oil giants appearing to play on rumours to move the markets.
Sounding a cautious note, the IEA said in its report: “We have looked at a scenario, not a forecast, showing that by the end of next year output from these two countries (Venezuela and Iran) could be 1.5 mb/d (million barrels per day) lower than it is today.”
It added: “To make up for the losses, we estimate that Middle East OPEC countries could increase production in fairly short order by about 1.1 mb/d and there could be more output from Russia on top of the increase already built into our 2019 non-OPEC supply numbers.”
The IEA nonetheless warned that whatever the outcome of the summit, “the market will be finely balanced next year, and vulnerable to prices rising higher in the event of further disruption”.
It added: “We support all efforts to minimise supply disruptions that, as history shows us, are not in the interests of either producers or consumers.”
The IEA meanwhile revised upwards its estimate for 2018 non-OPEC growth to 2 mb/d, and to 1.7 mb/d in 2019.
“The United States shows by far the biggest gain (about 75 percent of the total across 2018 and 2019), but recently this expansion has not been without stress,” the report said, referring to a gap in recent weeks between the US and European oil futures contracts.
The IEA report comes a day after OPEC warned of “considerable uncertainty as to world oil demand”.