Nobody Wins in a Market with Oil Supply Deficits

Oil supply disruptions. from extraordinary events or otherwise. are not in the best interest of consumers or producers. the International Energy Agency said.

The OPEC in its monthly market report expressed uncertainty about global oil demand in the 2nd half of the year. That came amid concerns about chronic shortages from a Venezuelan market plagued by sanctions. high debt and rampant inflation.

Within the next few months. more disruptions are possible given the snap back of U.S. sanctions on Iran. triggered by U.S. President Donald Trump`s decision in May to leave the U.N.-backed Joint Comprehensive Plan of Action. the nuclear deal that extended economic relief to Tehran.

The IEA said it was envisioning a scenario where production from both countries was 1.5 million barrels lower than current output. That comes as commercial oil stocks held by the world`s leading industrialized economies fell below the 5-year average. indicating there`s little capacity to compensate for additional losses.

The 5-year average is close to balance because of OPEC-led efforts to drain the surplus that pushed oil prices below $30 per barrel in early 2016. Saudi Arabia and Russia . the largest non-OPEC contributor to the agreement. have signaled it could respond to the looming deficit. though other OPEC countries have expressed opposition.

The IEA stated it was mindful of the market situation and ready to act if necessary to make up for any gaps. «It is also in regular dialogue with emerging importing countries.» its latest report read. «We support all efforts to minimize supply disruptions that. as history shows us. are not in the interests of either producers or consumers.» 

IEA action would coordinate a release of strategic reserves from member states. including the U.S. which led much of the sanctions pressure on Iran and Venezuela. IEA member states last released oil from their stockpiles in response to civil conflict in Libya in 2011.

The IEA stated that. even if the deficit from Iran and Venezuela is met by other suppliers. balance meant the market is vulnerable to spikes in the case of further disruptions. «It is possible that the very small number of countries with spare capacity beyond what can be activated quickly will have to go the extra mile.» it stated.

 

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