The Strategist

IEA: High oil prices threaten global economy

10/12/2018 - 15:08

The International Energy Agency (IEA) said that global oil supplies look "sufficient at the moment" after a significant increase in production over the past six months. However, the oil industry is under pressure because it is facing increasing global demand.

The reserve capacity for oil production in the world has already decreased to 2% of world demand, and it is likely that there will be a further reduction, the agency warned.

"This tension may persist for some time, and this will probably be accompanied by higher prices, no matter how much we regret them and their potential negative impact on the global economy," the IEA monthly report says.

The IEA lowered its forecast for global oil demand growth for this and the next year by 0.11 million barrels per day to 1.28 million bpd and 1.36 million bpd, respectively, Reuters reports.

"This is due to weaker economic prospects, trade problems, higher oil prices and a revision of Chinese data," the agency explained.

OPEC members and other exporters, such as Russia and US shale oil producers, have dramatically increased their production since May - by about 1.4 million bpd, the IEA reported.

OPEC increased production by 735 thousand bpd from May. Countries such as Saudi Arabia and the United Arab Emirates more than compensated for the decline in production in Venezuela and Iran, against which US sanctions will be imposed next month.

"The increase in production from key suppliers led by Saudi Arabia by about 1.4 million bpd from May, and the fact that oil reserves increased by 0.5 million bpd in the second quarter of 2018 and probably did the same thing in the third quarter, reinforces the argument that the oil market is sufficiently supplied at the moment," the report says.

Commercial stocks in the OECD countries in August rose by 15.7 million barrels to 2.854 billion barrels, reaching a maximum since February, amid strong production of oil refineries and replenishment of liquefied petroleum gas reserves, the IEA reported.

According to the agency, in the third quarter, reserves in the OECD countries probably increased by 43 million barrels, which was the maximum quarterly increase in stocks from the first quarter of 2016.

"Global oil supply and demand have nearly reached new heights at 100 mln bpd, and neither shows signs that growth will stop in the near future," the IEA said. "Demand drivers remain very powerful, while petrochemicals are a major factor," the agency added.