The oil market is “tightening up,” according to a new report from the International Energy Agency (IEA).
At first glance, the headline figures don’t look so bad. Global supply surpassed 100 million barrels per day (mb/d) in August, a new record high. Production even rose from OPEC, despite turmoil seen in several member countries.
But beneath that impressive supply figure, there are plenty of cracks that are all too familiar. The IEA acknowledged that oil prices experienced a dramatic swing since its last report in August, with Brent falling close to $70 before bouncing back up close to $80.
The reason for the volatility is the ongoing supply losses from Venezuela, combined with the disruptions in Iran related to U.S. sanctions. Venezuela’s production fell by another 40,000 bpd or so, taking output down to just 1.24 mb/d. The country is on track to end the year at 1 mb/d or lower. Meanwhile, buyers are already cutting their purchases of Iranian oil ahead of the November 4 deadline, resulting in the loss of some 500,000 bpd to date, with more declines expected.
Ultimately, the problems facing these two countries could push up oil prices. “If Venezuelan and Iranian exports do continue to fall, markets could tighten and oil prices could rise without offsetting production increases from elsewhere,” the IEA warned. There are some production increases elsewhere, including the combined 160,000 bpd from Saudi Arabia and Iraq over the past month. In fact, Saudi Arabia added 400,000 bpd since May and Iraq added 200,000-bpd over the same timeframe.