A loss of supply from Venezuela and Iran likely will mean that OPEC's Persian Gulf members will need to start pumping almost as much crude as they can, the International Energy Agency said Thursday.
Saudi Arabia might have to draw harder than ever before on its spare-production capacity as a spiraling economic crisis in Venezuela, renewed U.S. sanctions on Iran and disruptions in Libya strain global markets, the agency predicted.
"Rising production from Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world's spare-capacity cushion, which might be stretched to the limit," the Paris-based International Energy Agency said in its monthly report. "This vulnerability currently underpins oil prices and seems likely to continue doing so."
Facing intense political pressure from President Donald Trump, Saudi Arabia pledged last month that the kingdom and its allies would increase oil supplies to prevent rallying prices from hurting the global economy. Yet as Venezuela continues to unravel and Trump unleashes aggressive sanctions against Iran, fears that the supply increase won't be enough are keeping prices near the highest in three years.
Venezuela's total output capacity could sink below 1 million barrels a day by the end of the year, bringing its overall loss in 2018 to more than 40 percent, the energy agency said. Iran has already seen its shipments to Europe fall almost 50 percent as U.S. penalties deter buyers, and the country's total exports could slump even more, according to the agency, which advises most of the world's major economies.
As supply losses in OPEC pile up, its biggest producer, Saudi Arabia, is trying to plug the gap. The kingdom bolstered output by the most in three years last month, increasing by 430,000 barrels a day to 10.46 million a day, according to the agency.
If the Saudis raise production to a record 11 million barrels a day next month, as they've indicated they might, it would be the kingdom's biggest increase over a two-month period since 2011, the energy agency said.
Raising output further could shrink the country's spare-production capacity -- the crude left idle for emergencies -- to "an unprecedented level below 1 million barrels a day," the agency predicted. That would leave barely 1 percent of global supply to compensate for any additional stoppages.
World markets remain vulnerable as the Trump administration seeks to choke off Iranian crude exports after the president quit an accord that polices the Islamic Republic's nuclear program. U.S. sanctions look set to cut Iranian shipments by more than 1.2 million barrels a day, the IEA said.
The agency, which oversees the release of emergency oil stockpiles held by importing nations, reiterated that it's monitoring developments in case any action is required.
U.S. crude futures climbed above $75 a barrel on July 3, the highest since late 2014, prompting criticism from Trump that OPEC should do more to moderate prices. Fuel costs have sparked protests in Brazil and Russia, and complaints from India.
The energy agency's report showed further signs that prices are taking a toll, with global demand growth slowing in the second quarter to just 900,000 barrels a day. However, the agency kept its annual consumption growth forecasts for this year and next unchanged.
Oil hit an all-time high in New York a decade ago.
On July 11, 2008, West Texas Intermediate crude touched $147.27 a barrel on the New York Mercantile Exchange on concern Israel was preparing to attack Iran's nuclear program and during supply disruptions from Brazil to Nigeria. That overshadowed economic worries, including the lowest consumer confidence since 1980. At the same time, the dollar was near an all-time low against the euro.
On Wednesday, it was the opposite story, as economic worries trumped supply disruptions. West Texas crude plunged 5 percent to just above $70 a barrel on concerns that an escalating trade war between the United States and China will threaten global economic growth and as Libyan crude exports increased.
If the Persian Gulf nations fail to increase oil production the United States is on pace to leapfrog Saudi Arabia and Russia to reclaim the title as the world's biggest oil producer.
The latest forecast from the U.S. Energy Information Administration predicts that U.S. output will grow next year to 11.8 million barrels a day.
"If the forecast holds, that would make the U.S. the world's leading producer of crude," said Linda Capuano, who heads the agency, a part of the Energy Department.
The United States led the world in oil production for much of the 20th century, but the Soviet Union surpassed America in 1974, and Saudi Arabia did the same in 1976, according to Energy Department figures.
Information for this article was contributed by David Marino of Bloomberg News and by David Koenig of The Associated Press.
Business on 07/13/2018