Mubasher:The spare capacity of global oil spare capacity could be consumed on the back of long-time disruptions which pushed prices higher, threatening demand growth, the International Energy Agency (IEA) warned on Thursday.
There were “very welcome” indicators that output from major exporters had been ramped up, with the possibility of hitting a record, the Paris-headquartered IEA said in its Oil Markets Report (OMR), adding that crude production from the Organization of Petroleum Exporting Countries (OPEC) hit a four-month high of 31.87 million barrels per day (bpd) in June.
Oil prices rose to their highest levels since mid-2014 by looming supply shortfalls from Iran following US President Donald Trump’s announcement that sanctions would be re-imposed on Iran’s energy sector, added to falling Venezuelan production and the unexpected outages in Libya, Canada, and the North Sea.
In response, OPEC and allied producers including Russia pledged to offset such shortages.
However, these disruptions underpinned the “tightness” in global oil markets, while production capacity cushion, the ability to boost production in a relatively short time, “might be stretched to the limit,” the energy watchdog warned.
Given that much of the spare capacity is located in the Middle East, the region’s spare capacity in July was about 2% of global production or 1.6 million bpd.
Moreover, despite non-OPEC output, including surging US production, the amount is not expected to be sufficient to ease concerns regarding shortages.
“This vulnerability currently underpins oil prices and seems likely to continue doing so,” with no indication of higher output elsewhere, the IEA said.
IEA held its forecast for crude demand in 2018 at 1.4 million bpd, but warned of fading consumption driven by surging prices.
The world’s second and third largest oil consumers, China and India, could see “major challenges” in finding alternative crude oil following the drop in Iranian and Venezuelan exports, the IEA said.
By 10:29 am GMT, global Brent crude futures rose 0.67% to $70.85 per barrel (pb), while US Nymex futures climbed 1.59% to $74.57 pb.
This article provided by NewsEdge.