IEA: Spare capacity to be “stretched to the limit”

IEA: Spare capacity to be “stretched to the limit”

The International Energy Agency (IEA) has warned that the world’s oil supply cushion to be “stretched to the limit” following extensive outages, supporting prices and the growing concern over demand growth.

Oil prices have been driven to their highest since 2014 in recent weeks following the drop in Iranian output due to renewed US sanctions, Venezuela’s reduced production, as well as outages in Canada and the North Sea.

OPEC and its allies eased a supply cut deal to ease the market after US President Donald Trump accused the group of pushing prices higher.

The IEA said that top producers could reach record output, but global spare capacity “might be stretched to the limit”.

Much of the world’s spare capacity, which refers to a producer’s ability to suddenly increase production in a short amount of time, is located in the Middle East where levels in July were at 1.6 million bpd – 2% of global output.

In its monthly Oil Markets Report, the IEA said: “This vulnerability currently underpins oil prices and seems likely to continue doing so. We see no sign of higher production from elsewhere that might ease fears of market tightness.”

The Agency forecast 2018 demand growth at 1.4 million bpd but suggested that the recent surge in prices could dampen consumption.

“Higher prices are prolonging the fears of consumers everywhere that their economies will be damaged. In turn, this could have a marked impact on oil demand growth.”

The world’s largest consumer, India and China could face “major challenges” in finding new sources of crude as a result of reduced crude output from Iran and Venezuela.

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