Oil markets have entered a short period of doldrums, but it may well be a storm later in the year when the US sanctions against Iran came into force, according to the International Energy Agency (IEA).
“The recent cooling of the market amid the relief of short-term tensions around supply, the current lower prices and weaker demand growth may not last long”, says the IEA in its monthly report.
The crude oil prices rose significantly to nearly 80 USD per barrel earlier this year, reaching its highest level since 2014 due to concerns about supply shortages. But they have fallen in recent weeks after Libya has regained some of its capacities, and Washington has hinted they can make some exceptions to Asia’s buyers from sanctions against Iranian oil.
However, the US has indicated that they still want to force Iranian oil consumers to stop their purchases in the long run.
Iran is the third largest producer in OPEC with a production of about 4 million barrels per day or 4% of global supplies.
“With the enactment of oil sanctions against Iran and combined with manufacturing problems elsewhere, maintaining global supplies can be a major challenge and will be at the expense of maintaining adequate spare capacity”, said the IEA.
Saudi Arabia, one of Iran’s main regional opponents, has already proposed to intervene to prevent a possible shortage. Riyadh produces about 10.4 billion barrels per day and in theory can increase production to over 12 billion barrels per day.
Such a move, however, will in practice eliminate world reserves, offsetting potential difficulties for some of the producers, as recently in Libya, Venezuela and Nigeria.
“At that point, the market outlook could be as relaxed as it is at the moment”, said the IEA.
The IEA maintained its forecast for the growth of oil demand in 2018 to 1.4 million barrels per day, but raised the expectations for 2019 by 100,000 barrels per day to 1.49 barrels per day.
“Another factor that needs to be taken into account is that trade strain can escalate and lead to slower economic growth and hence lower oil demand”, adds the IEA.