Ample non-OPEC supplies and weak demand a bane to oil prices: energy watchdog

About 40 percent of the world’s seaborne oil passing through the Strait of Hormuz, above, and a disruption to shipping because of the Iran-US tension could roil markets. (AFP)
Updated 14 June 2019

Ample non-OPEC supplies and weak demand a bane to oil prices: energy watchdog

  • The International Energy Agency cut its forecast for oil demand growth this year for the second month straight

PARIS: Tepid growth in demand for oil along with ample supplies from non-OPEC countries will complicate efforts by the group and its allies to boost prices, the IEA said in a report Friday.
The focus in oil markets in recent months and days has been on supply issues — from US sanctions on Iran and Venezuela to tanker attacks near the Strait of Hormuz — which has helped OPEC and its allies, which are often called OPEC+, in their efforts to prop up prices by cutting back output.
But the International Energy Agency said that now “the main focus is on oil demand as economic sentiment weakens.”
It cited data that world trade growth has fallen to its lowest level since the financial crisis a decade ago amidst the burgeoning US trade wars, which have already begun to have an impact on demand for oil.
In the first three months of this year global demand for oil rose only by a meagre 300,000 barrels per day, the lowest quarterly increase in nearly eight years.
While there were some idiosyncratic factors such as weather, the IEA said “the worsening trade outlook (was) a common theme across all regions.”
The IEA cut its forecast for oil demand growth this year for the second month straight and trimmed its second quarter forecast as well.
While in its first estimates for 2020 the IEA sees oil demand accelerating, this is more than matched by output gains from nations outside OPEC+.
It put the increase of non-OPEC supplies at 2.3 million barrels per day (mbd) in 2020 while global demand is seen as increasing by 1.4 mbd. In 2019, the 1.9 mbd increase in non-OPEC supplies is also expected to outweigh the 1.1 mbd increase in demand.
“A clear message from our first look at 2020 is that there is plenty of non-OPEC supply growth available to meet any likely level of demand...” said the IEA.
“This is welcome news for consumers and the wider health of the currently vulnerable global economy, as it will limit significant upward pressure on oil prices,” said the Paris-based institution that provides advice to oil-consuming nations.
The data comes as ministers from the OPEC+ nations are due to meet later this month to debate whether to continue their production restraints.
With the IEA saying its forecast “means the tightening of oil markets could prove short lived,” OPEC+ nations may have to consider stepping up their cuts to maintain leverage on prices.
While the IEA added the caveat that its outlook assumes no major geopolitical shock, it also noted that OPEC countries have ample spare production capacity thanks to the cuts they have implemented.
The IEA’s latest monthly report comes a day after attacks on two tankers in the Gulf of Oman, which caused oil prices to briefly shoot more than four percent higher, in the second spate of incidents in a month in the strategic shipping lane.
With some 40 percent of the world’s seaborne oil passing through the Strait of Hormuz, a disruption to shipping could roil markets.
The attacks come amid rising tensions between Tehran and Washington as the US has intensified sanctions on Iran over its nuclear program.
The IEA said that the US sanctions have not yet completely cut off Iranian oil exports, but they have fallen drastically.
Iran’s crude production fell 210,000 barrels to 2.4 mbd in May when exports plunged by 480,000 to 810,000 barrels per day as Washington pulled the last waivers for other nations to buy Iranian oil. That export level is less than a third of what it was exporting a year ago.
The IEA added it was becoming increasingly difficult to determine where Iranian oil was being shipped as Iran’s national oil company shut off satellite tracking systems on its ships.


Russia blames missed oil target on rise in gas condensate output

Updated 11 min 45 sec ago

Russia blames missed oil target on rise in gas condensate output

  • Output falls but remains above global production cap as minister vows country will work to fulfill its obligations
  • OPEC, Russia and other oil producers, an alliance known as OPEC+, agreed in December to reduce supply by 1.2 million bpd from the start of this year

MOSCOW: Russia produced more oil in September than envisaged by a global deal due to an increase in gas condensate output as the country prepared for winter, local news agencies reported
on Sunday.

Russian oil output edged down to 11.25 million barrels per day (bpd) last month from August’s 11.29 million bpd, but remained above the cap set under the global production deal.

Under the accord reached between the Organization of the Petroleum Exporting Countries (OPEC) and allied producers, Russia has agreed to reduce output by 228,000 bpd from an October 2018 baseline.

Energy Minister Alexander Novak has said the reduction totaled 200,000 bpd last month. He reiterated that the country would strive to fulfil its obligations this month in full.

“We had specific obligations related, among other factors, to dealing with the winter period, with the production of gas condensate,” TASS news agency quoted Novak as saying.

Output of gas condensate, a light oil, is included in Russian statistics on total oil production.

OPEC, Russia and other oil producers, an alliance known as OPEC+, agreed in December to reduce supply by 1.2 million bpd from the start of this year.

OPEC and its allies will meet on Dec. 5-6 in Vienna to review output policy.

Market participants believe the group known as OPEC+ could decide to extend production cuts “and wait until world demand catches up with the supply situation,” Andy Lipow, president of Lipow Oil Associates in Houston said last week.

OPEC Secretary-General Mohammad Barkindo has said deeper output cuts are an option and that OPEC would do what it could with allied producers to sustain oil market stability beyond 2020.

OPEC, Russia and other producers have agreed to cut oil output by 1.2 million barrels per day until March 2020.