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Extra crude oil production needed to fill Iran, Venezuela gap: IEA

London (Platts)--13 Jun 2018 514 am EDT/914 GMT


The International Energy Agency described Wednesday the oil market as "finely balanced" and vulnerable to disruption and said OPEC swing producers and others might need to raise their production, even as it noted some factors on the demand side likely to have a moderating influence.


  • Non-OPEC output seen rising 2 million b/d this year
  • Costlier oil keeps 2019 demand growth at 1.4 million b/d
  • Trade tension, weak currencies threaten demand

In its monthly oil market report, issued ahead of OPEC's next regular meeting on June 22, the IEA predicted that Venezuela's oil output could fall to just 800,000 b/d or even lower next year, from 1.36 million b/d in May and following a 1 million b/d fall over the last two years. It estimated OPEC production had risen by 50,000 b/d in May to 31.69 million b/d.

Venezuela's crisis and the likely impact of the US decision to reinstate sanctions against Iran "would require higher production from those producers with spare capacity," it said, referring to countries party to the 2016 production cut agreement, such as Russia and a number of Gulf states.

"If the other 12 OPEC members were to continue pumping at the same rate as May, a potential supply gap could emerge and lead to a draw on stocks of more than 1.6 million b/d in Q4 2019," it added.

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"Even if the Iran/Venezuela supply gap is plugged, the market will be finely balanced next year, and vulnerable to prices rising higher in the event of further disruption. 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," the IEA said.

It added that commercial oil stocks in OECD countries had fallen to a three-year low of 2.809 billion barrels in April.


BEARISH SIGNALS


On a more bearish note the IEA increased its estimate of non-OPEC oil output growth this year to 2.0 million b/d on the back of surging US output, from 1.9 million b/d in its previous report, although it forecast a slowdown in non-OPEC oil output next year to a growth rate of 1.7 million b/d, noting rising costs in the US shale sector and a lack of pipeline capacity.

It forecast that US crude output growth would slow to 900,000 b/d next year, from 1.3 million b/d this year.

Output growth among countries not party to the 2016 production cut agreement contributed to the IEA lowering its estimate of the "call" on OPEC, or the need for OPEC crude, this year to 31.9 million b/d, from 32.2 million b/d in last month's report, and it forecast a reduction to 31.6 million b/d next year.

In another bearish signal the IEA maintained its forecast that global oil demand will grow by a relatively modest 1.4 million b/d this year, and extended that to forecast the same growth next year, assuming a "solid" economic background and stable prices.

It noted that demand had received a boost earlier this year from new petrochemical capacity in the US, but said higher prices would reduce growth to 1.25 million b/d in the second half of this year, leading on to growth of 1.2 million b/d in the first half of next year, before an acceleration to 1.65 million b/d in the second half of next year.

But it warned of "downside risks," saying the risks associated with trade tensions were "not negligible" and highlighting currency risks that have reduced the purchasing power of several countries including Argentina, Brazil, Mexico, Russia and Turkey.

The report also projected a sharp slowdown in oil demand growth in China and India in the second quarter of this year, forecasting Chinese oil demand would grow by 270,000 b/d on the year in the current quarter, down from 460,000 b/d year on year in the first quarter. For India, year-on-year growth would be 265,000 b/d in the second quarter, compared with 360,000 b/d in the first quarter, it said.

--Nick Coleman, nick.coleman@spglobal.com
--Edited by Jonathan Loades-Carter, newsdesk@spglobal.com




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