Global oil supplies could be hit by the decision by the US to pull out of the Iran nuclear deal, and also by falling production in crisis-hit Venezuela, the IEA said on Wednesday.
The decision by US President Donald Trump to withdraw from the Iran deal “has switched the focus of oil market analysis from the fundamentals to geopolitics,” the International Energy Agency wrote in its regular monthly report.
On May 8, Trump announced he would pull the US out of a 2015 pact — agreed by Britain, China, Germany, Russia and the Barack Obama administration — that opened up Tehran’s atomic programme in return for an easing of sanctions.
Oil prices — which had already rising on the back of steady demand growth and a landmark deal by oil producing countries, both inside and outside the OPEC cartel, to lower output — have since surged above $77 per barrel, the IEA said.
“In these early days, there is understandable uncertainty about (the) potential impact on Iran’s oil exports” from the US move, it said.
When sanctions were imposed in 2012, Iranian exports fell by about 1.2 million barrels per day, the organisation said.
“It is too soon to say what will happen this time, but we should examine whether other producers could step in to ensure an orderly flow of oil to the market and offset a disruption to Iranian exports.”
Shortly after the US announcement, Saudi Arabia, the OPEC cartel kingpin, acknowledged the need to work with producers and consumers to mitigate possible supply shortfalls, the IEA noted.
Demand growth to slow
Another possible risk to the global oil supply could come from crisis-hit Venezuela, the IEA said.
“In Venezuela, the pace of decline of oil production is accelerating and by the end of this year output could have fallen by several hundred thousand barrels a day,” the IEA said.
“The potential double supply shortfall represented by Iran and Venezuela could present a major challenge for producers to fend off sharp price rises and fill the gap, not just in terms of the number of barrels but also in terms of oil quality,” it said.
The IEA said that the overall market balance was “continuing to tighten”, and it lowered its estimate for 2018 global oil demand growth to 1.4 million barrels per day from its previous estimate of 1.5 million.
“Demand at the start of the year was supported by cold weather in Europe and the US, the start-up of new petrochemical capacity in the US and a solid economic background,” the IEA said.
“While the economic environment will continue to support oil demand… support from harsh weather conditions will vanish and the recent jump in oil prices will take its toll,” it said.
“Therefore, world oil demand growth is expected to slow” in the second half of the year.
Published in Daily Times, May 17th 2018.