Oil supplies and prices remain stables thanks to increased production from U.S., Russia and Saudi Arabia
Energize Weekly, November 21, 2018
Oil supplies are up and prices down—despite flagging output from Venezuela and sanctions on Iranian oil—as result of increased production from key countries and a softening demand from developing countries, the International Energy Agency (IEA) said.
In August, the IEA warned that losses of Venezuelan and Iranian supplies could be “challenging,” but production from Saudi Arabia, the United States and Russia have led to a growth in supplies, the IEA said in its monthly Oil Market Report.
“Producers have heeded the warnings and more than met the challenge and today, the Big Three, Russia, Saudi Arabia and the United States, all see output at record levels,” the IEA said.
October output was up 2.6 million barrels a day (mb/d), and “new data show that the pace has accelerated,” the report said. The agency projects an increase in the fourth quarter of 2018 of 700,000 barrels a day.
Total oil production outside the Organization of the Petroleum Exporting Countries (OPEC) was 3.5 million barrels a day higher than a year ago, with the U.S. producing 3 million barrels a day and Russia’s crude output at 11.4 million barrels a day.
On Nov. 4, the U.S. imposed sanctions on Iran aiming to block its 1.8-million-barrel-a-day production from reaching international markets. That ban was eased, and the market impact softened when the U.S. granted waivers to eight countries—China, Italy, Japan, South Korea, Taiwan, India, Greece and Turkey—enabling them to temporarily purchase Iranian oil.
The outlook for global oil demand remained unchanged at 1.3 million barrels a day for 2018 and 1.4 million barrels a day in 2019, “as a weaker economy is offset by lower oil prices,” the market report said.
The demand has also softened in several countries outside the 36 industrialized nations in the Organization for Economic Cooperation and Development as a result of higher year-on-year oil prices and currency devaluations that make it more difficult to buy oil, which is paid for in U.S. dollars.
On worries of market scarcity, Brent crude oil prices hit $86 a barrel in October, a dangerous “red zone,” according to IEA. The price has dropped to $70 a barrel, below where it was last May before the U.S. said it would impose sanctions on Iran.
Although the oil market appears to be more relaxed than it was a few weeks ago, and there might be a sense of “mission accomplished” that producers have met the challenge of replacing lost barrels, “such is the volatility of events that rising stocks should be welcomed as a form of insurance, rather than a threat,” the IEA said. “The United States remains committed to reducing Iranian oil exports to zero from the 1.8 mb/d seen today; there are concerns as to the stability of production in Libya, Nigeria and Venezuela; and the tanker collision last week in Norwegian waters, although modest in impact, is another reminder of the vulnerability of the system to accidents.”
The agency also noted that while greater output and lower prices are welcomed by consuming nations, they are “far from welcomed” by producing nations and that when OPEC and other major producers, such as Mexico and Russian, meet in early December, production could be cut.