Rising crude prices will restrain oil demand growth, the International Energy Agency said, just as the body warned of a price spike due to a potential “double supply shortfall” from Iran and Venezuela.
The Paris-based agency revised lower its assumption for 2018 oil consumption growth to 1.4m barrels a day — from a prior estimate of 1.5m b/d — with total demand expected at 99.2m b/d.
“We expect a slowdown in [demand growth in the second half of the year] largely attributable to higher oil prices,” the IEA said in its monthly oil market report.
“Crude oil prices have risen by nearly 75 [per cent] since June 2017. It would be extraordinary if such a large jump did not affect demand growth,” it said.
Robust oil demand together with supply curbs led by Opec and Russia have coincided with a series of geopolitical crises over the past year pushing up prices towards $80 a barrel this week.
The removal of energy subsidies in big consumer economies in recent years, such as those in India, could mean rising prices have a bigger impact on demand, the IEA said.
Even stronger prices could loom, the IEA said, as supplies from Iran take a hit following new sanctions on its oil from the US, which has withdrawn from the nuclear deal with the Opec country.
In addition, an accelerating drop in production and exports from Venezuela is in focus as political and economic troubles have dealt a blow to its energy sector.
“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,” the IEA said.
The IEA welcomed a statement from Opec kingpin Saudi Arabia last week saying it would work with other producers to limit the impact of supply shortfalls. As prices have risen and geopolitical crises have taken hold, industry analysts and traders have questioned when global producers will begin to unwind their deal, in place since 2017, to curb supply.
Opec crude production eased in April to nearly 31.7m b/d, even as demand for the cartel’s crude is expected at a greater level of 32.2m b/d this year.
The IEA, which represents some of the world’s largest consumer countries, also said it too would be “ready to act if necessary to ensure that markets remain well supplied.” An important function of the body since it was created in the 1970s has been the co-ordinated release of emergency oil stockpiles among its members should a severe disruption to supplies take place.
The IEA said higher production from the US would need to compensate for lower volumes from elsewhere. Even as it expects robust US production in 2018, it said the industry is facing “logistics constraints” limiting its impact.
Production from outside of Opec will grow by nearly 1.9m b/d in 2018, led by the US, a slightly higher rate than seen in last month’s report. Total output from these countries is forecast at 60m b/d.
Commercial stockpiles in industrialised nations fell in March to just above 2.8bn barrels — their lowest level since March 2015. The IEA acknowledged attention of market participants has shifted away from inventories to price volatility.