The Strategist

The IEA forecasts deficit in oil markets

05/17/2018 - 09:36

The world oil market may face a situation of supply reduction for two reasons - because of sanctions against Iran and because of falling supplies from Venezuela, experts of the International Energy Agency (IEA) warn in its May report. So far, the agency has not been able to assess impact of the US withdrawal from the deal on the nuclear program to restrict Iran's deliveries, as the export of oil from this country is 2.4 million barrels per day (bpd) with a total production of 3.8 million bpd (after the introduction sanctions in 2012, it fell to 1.2 million bpd). "Neither Venezuela nor Mexico will be able to increase supplies, but other countries that agreed to cut production by 1.5 million bpd can partially offset the decline in exports from Iran," the authors of the report said.

In April, OPEC countries cut shipments totaling 130,000 bpd, to 31.65 million bpd. In particular, the decline in production was noted in Venezuela and in African countries, the level of execution of the OPEC + deal reached a record 172%. Until the end of the year, production in Venezuela, which has already exceeded its obligations under the deal by 550 thousand bpd (this is more than Saudi Arabia), may be reduced by an additional several hundred thousand barrels per day, the IEA expected, indicating that together with the Iranian factor this represents a major problem for oil producers, in terms of not only the quantity but also the quality of oil.

The reduction in supplies by OPEC countries was offset by an increase in production in Canada and the United States. According to the results of 2018, countries that are not part of OPEC can increase production by 1.87 million bpd, the IEA expects. The forecast for growth in the US was further increased by 120 thousand bpd (up to 1.3 million bpd). The main reason for the revision is expectation of a more substantial rise in prices for this energy resource. However, the same factor will prevent the increase in demand for oil this year, which, according to the forecast of the IEA, will be 1.4 million bpd (against 1.5 million bpd, expected in April). Last year, the increase was more significant - by 1.6 million bpd. The total demand in the end can reach 99.2 million bpd, while the total supply of oil in the market in April remained at the same level - 98 million bpd. The agency also noted a record decline in oil reserves in OECD countries - in March their volume was at the level of March 2015 and fell below the average for five years.