You are here: Home » Reuters » News
Business Standard

World's oil cushion could be stretched to the limit, IEA warns

Reuters  |  LONDON 

By Ron Bousso

LONDON (Reuters) - The world's supply cushion could be stretched to the limit due to prolonged outages, supporting prices and threatening demand growth, said on Thursday.

The expected drop in Iranian crude exports this year due to renewed U.S. sanctions, coupled with a decline in Venezuela's production and outages in Libya, and the have driven prices to their highest since 2014 in recent weeks.

OPEC and other key producers including responded to the tightness by easing a supply-cut agreement, with vowing to support the market as U.S. accused the group of pushing prices higher.

The Paris-based IEA said in its monthly Markets Report that there were already "very welcome" signs that output from leading producers had been boosted and may reach a record.

The global however said the disruptions underscored the pressure on global supplies as the world's spare production capacity cushion "might be stretched to the limit".

Spare capacity refers to a producer's ability to ramp up production in a relatively short time. Much of it is located in the

The IEA said OPEC crude production in June reached a four-month high of 31.87 million barrels per day. Spare capacity in the in July was 1.6 million bpd, roughly 2 percent of global output.

As U.S. sanctions on are expected to "hit hard" in the fourth quarter of the year, could further ramp up output, which would cut the kingdom's spare capacity to an unprecedented level below 1 million bpd, the IEA said.

Non-OPEC production including from surging U.S. shale also continued to rise, but the IEA said that might not be enough to assuage concerns.

"This vulnerability currently underpins 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 IEA maintained its 2018 oil demand growth forecast at 1.4 million bpd, but warned that higher prices could dampen consumption.

"Higher prices are prolonging the fears of consumers everywhere that their economies will be damaged. In turn, this could have a marked impact on oil demand growth."

The IEA said Iran's crude exports could be reduced by significantly more than the 1.2 million bpd seen in the previous round of international sanctions. exports roughly 2.5 million bpd, most of which goes to

and India, the world's second and third largest oil consumers, could face "major challenges" in finding alternative following the drop in Iranian and Venezuelan exports, the IEA said.

Iranian crude exports to dropped by nearly 50 percent in June, the IEA said, as refiners gradually wind down purchases before U.S. sanctions take effect in November.

(Reporting by Ron Bousso; Editing by Dale Hudson)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Thu, July 12 2018. 13:52 IST
RECOMMENDED FOR YOU