Reuters/London
Oil markets look “adequately supplied for now” after a big increase in production over the last six months but the oil industry is coming under strain as it copes with increasing global demand, the West’s energy watchdog said yesterday.
The International Energy Agency said in its monthly report that the world’s spare oil production capacity was already down to only 2% of global demand, with further reductions likely to come.
“This strain could be with us for some time and it will likely be accompanied by higher prices, however much we regret them and their potential negative impact on the global economy,” the Paris-based IEA said.
Members of the Organisation of the Petroleum Exporting Countries and other exporters such as Russia and US shale producers had increased oil production sharply since May, the IEA said, raising output by 1.4mn barrels per day (bpd). Overall Opec had boosted production by 735,000 bpd since May as Middle East Gulf producers such as Saudi Arabia and the UAE more than compensated for declining output in Venezuela and Iran, which is facing US sanctions from next month.
And the outlook for world oil consumption was faltering.
The IEA cut its forecast of global oil demand growth by 0.11mn bpd for both this year and next to 1.28mn bpd and 1.36mn bpd respectively.
“This is due to a weaker economic outlook, trade concerns, higher oil prices and a revision to Chinese data,” said the IEA, which advises major oil consumers on energy policy. OECD commercial stocks rose by 15.7mn barrels in August to 2.854bn barrels, their highest level since February, on strong refinery output and liquefied petroleum gas restocking, the IEA said.
It added that OECD inventories were likely to have risen by 43mn barrels in the third quarter, the largest quarterly increase in stocks since the first quarter of 2016.
“The increase in net production from key suppliers since May of approximately 1.4mn bpd, led by Saudi Arabia, and the fact that oil stocks built by 0.5mn bpd in 2Q18 and look likely to have done the same in 3Q18, lends weight to the argument that the oil market is adequately supplied for now,” the IEA said.
