Oil prices flat as IEA warns of output capacity limits

Galtero Lara
Julio 12, 2018

Rising global oil supply, driven by crude giants Saudi Arabia and Russian Federation, may come under pressure as key producers face disruptions, the International Energy Agency said Thursday.

The expected drop in Iranian crude exports this year due to renewed U.S. sanctions, coupled with a decline in Venezuela's production and outages in Libya, Canada and the North Sea have driven oil prices to their highest since 2014 in recent weeks.

"This will become an even bigger issue as rising production from Middle East Gulf countries and Russian Federation, welcome though it is, comes at the expense of the world's spare capacity cushion, which might be stretched to the limit".

"This vulnerability now underpins oil prices and seems likely to continue doing so", the IEA added.

OPEC and other key producers including Russian Federation responded to the tightness by easing a supply-cut agreement, with Saudi Arabia vowing to support the market as US President Donald Trump accused the group of pushing prices higher. Yet as Venezuela continues to unravel and Trump unleashes aggressive sanctions against Iran, fears that the supply boost won't be enough are keeping prices near the highest in three years.

"Even so, global oil output was 1.25 million barrels per day higher than a year ago as rampant USA output underpinned healthy non-OPEC growth".

Brent crude had slumped nearly 7 percent in the previous session, amid news Libya is poised to resume oil exports.

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As supply losses in the Organization of Petroleum Exporting Countries pile up, its biggest producer, Saudi Arabia, is trying to plug the gap.

Benchmark Brent crude oil rose $1.70, or more than 2.3 per cent, to a high of $75.10 a barrel before losing nearly all its gains to trade at $73.60, up 20 cents, by 1340 GMT.

Raising output further could shrink the country's spare production capacity - the crude left idle for emergencies - to "an unprecedented level below 1 million barrels a day", the IEA predicted. That would leave barely 1 percent of global supply to compensate for any additional outages.

"Already in June the two key producers lifted output by more than 500,000 barrels per day between them", the IEA said.

The agency, which oversees the release of emergency oil stockpiles held by importing nations, reiterated that it's monitoring developments in case any action is required.

US crude futures climbed above $75 a barrel on July 3, the highest since late 2014, prompting criticism from Trump that OPEC should do more to moderate prices. Fuel costs have sparked protests in Brazil and Russian Federation, and complaints from India. "In turn, this could have a marked impact on oil demand growth". However, the agency kept its annual consumption growth forecasts for this year and next unchanged.

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