IEA: oil market is at a turning point

Prices for Brent crude over the past month rose from nearly $70 to $80 per barrel, but they can grow even more if the oil producers will not be able to compensate for falling volumes from Venezuela, Iran and perhaps Libya, says the IEA in its monthly report.

МЭА: для нефтяного рынка наступил критический момент

Pump jacks are seen in the Midway Sunset oilfield, California, in this April 29, 2013 file photo. REUTERS/Lucy NicholsonPump jacks are seen in the Midway Sunset oilfield, California, in this April 29, 2013 file photo. REUTERS/Lucy Nicholson

According to the Agency, prices rose for two reasons — the continued fall of oil production in Venezuela and the approach of November 4, when they introduced U.S. sanctions against Iran. In Venezuela, oil production in August fell to 1.24 million b/d, and if the drop continues at the same rate, by the end of the year production will fall to 1 million b/d.

The data provided by the tracking system of tankers, we can say that the exports from Iran have already fallen substantially, by 500 thousand b/d, said IEA, but calls to wait to see, won’t increase this fall.

Oil production in Iran fell to the lowest level observed since August 2016 — to 3.63 million b/d, as more buyers distanciruemsa Iranian oil ahead of sanctions. The exports from July fell even more production — 280 thousand b/d to 1.9 million b/d, as key buyers — China and India — have significantly reduced purchases. It seems that part of production moved to land storage of Iran. The peak of oil exports to Iran peaked in April-may to 2.4 million b/d. sales of Korea and France stopped from June, but overall deliveries in Europe rose in August on 510 thousand b/d. Deliveries in Asia fell by 500 thousand b/d. China and India are key buyers of Iranian oil in August have reduced purchases of 200 thousand b/d and 380 thousand b/d respectively.

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If the production decline in Venezuela and Iran will continue, the market shrink, and the price of oil will increase if other producers are not increasing production.

According to the results of the June OPEC decision+ Saudi Arabia and Iraq increased production by 160 thousand b/d. In the case of Iraq, exports grew to such an extent that it became more than the production in Iran, and there are still 200 thousand b/d of spare capacity in the North of Iraq due to the ongoing dispute with the Kurdistan regional government.

OPEC countries in August are 2.7 million b/d of spare capacity, of which 60% are in Saudi Arabia, but it is unclear how easily they can be used. And it’s not just a question of volume but also the quality of oil, refiners will try to replace the Iranian and Venezuelan oil with oil of a similar quality.

As for opportunities in other countries to increase production, the IEA notes that Brazil, which had planned to increase production this year, due to the different problems will increase only by 30 thousand b/d.

The United States continues to demonstrate excellent performance in 2018 production will grow by 1.7 million b/d, and a further 1.2 million b/d. “however, companies do not adjust their plans for production, despite the rise in oil prices due to bottlenecks in infrastructure, and this is unlikely to change in the near future”, — says the Agency.

Finally, the growth prospects of oil production in Libya remains fragile due to the recent riots.

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As the demand for oil, in 2018 it will grow by 1.4 million b/d in 2019 will grow by another 1.5 million b/d. nevertheless, there are signs of weakening demand and sluggish demand for gasoline in the United States because of the high prices, demand in Europe is significantly lower than a year ago, the demand for oil in Japan affected by high temperature and recent natural disasters.

In 2019 the demand in developing countries may affect the weakening of the currency. The risk of war and trade.

“We are entering a very critical period for the oil market,” the IEA concludes.

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