Oil markets have entered a brief period of calm but a storm might be looming later this year when new U.S. sanctions are poised to slash supplies of Iranian oil, the International Energy Agency (IEA) said Aug. 10.
"The recent cooling down of the market, with short-term supply tensions easing, currently lower prices, and lower demand growth might not last," the IEA, which oversees the energy policies of industrialized nations, said in a monthly report.
Oil prices have rallied close to $80 per barrel, their highest since 2014, on concerns about supply shortages but cooled in recent weeks as Libya regained some lost production and Washington signaled it could give Asian buyers of Iranian oil some exemptions from sanctions for next year.
However, the U.S. said it was still seeking to force Iran's oil customers to stop purchases completely in the long run.
Iran is OPEC's third-largest producer, with output at around 4 million barrels per day (bbl/d) or 4% of global supply.
"As oil sanctions against Iran take effect, perhaps in combination with production problems elsewhere, maintaining global supply might be very challenging and would come at the expense of maintaining an adequate spare capacity cushion," the IEA said.
Saudi Arabia, Iran's arch-foe and a close ally of Washington, has pledged intervention to prevent any supply shortage.
Saudi Arabia is producing around 10.4 million bbl/d and could, in theory, raise output to above 12 million bbl/d.
But such a move would leave the world with virtually no spare capacity to cushion against possible supply disruptions in producer countries like Libya, Venezuela or Nigeria.
"Thus, the market outlook could be far less calm at that point than it is today," the Paris-based IEA said.
Besides supply fears, oil prices are being supported by healthy demand growth that has repeatedly surprised on the upside in recent years despite a recovery in prices.
The IEA kept its 2018 oil demand growth forecast unchanged at 1.4 million bbl/d but raised its 2019 forecast by around 110,000 bbl/d to 1.49 million bbl/d.
"Another factor to consider is that trade tensions might escalate and lead to slower economic growth, and in turn lower oil demand," the IEA said, referring to a trade dispute between the U.S. and China.
Recommended Reading
Talos Energy Expands Leadership Team After $1.29B QuarterNorth Deal
2024-04-25 - Talos Energy President and CEO Tim Duncan said the company has expanded its leadership team as the company integrates its QuarterNorth Energy acquisition.
Energy Transfer Ups Quarterly Cash Distribution
2024-04-25 - Energy Transfer will increase its dividend by about 3%.
ProPetro Ups Share Repurchases by $100MM
2024-04-25 - ProPetro Holding Corp. is increasing its share repurchase program to a total of $200 million of common shares.
Baker Hughes Hikes Quarterly Dividend
2024-04-25 - Baker Hughes Co. increased its quarterly dividend by 11% year-over-year.
Weatherford M&A Efforts Focused on Integration, Not Scale
2024-04-25 - Services company Weatherford International executives are focused on making deals that, regardless of size or scale, can be integrated into the business, President and CEO Girish Saligram said.