The global oil market is looking "better supplied"
than earlier this year mostly due to a ramp up in OPEC production, but the
impact of sanctions and a European Union embargo on Iranian oil output raise
the risk of a tighter market from the summer onwards, the International Energy
Agency said Wednesday.
The IEA's warning comes as ministers from the Organization of the Petroleum
Exporting Countries meet this week to discuss their output amid worries from
some of the group's members that falling oil prices and rising oil inventories
are indicating an oversupplied market.
Oil prices have fallen around 25% from a peak in March as turmoil over euro
zone debt piles has begun to impact economic recovery and oil demand in the
region and elsewhere. Benchmark Brent crude is trading around $97 a barrel.
"The market can clearly now be characterized as 'better supplied,' but
'over-supplied' looks something of a stretch given the myriad uncertainties
that lie ahead for the summer," said the IEA, which represents the
interests of major energy-consuming rich countries.
The risk is that Iran could be forced in the next month or two to
start shutting in between 500,000 and 700,000 barrels a day of its oil
production as exports become more constrained after the European embargo takes
full effect July 1 amid the ongoing U.S. sanctions, said David Fyfe, head of
the oil markets division at the IEA.
"It's likely to be a gradual process. In fact, it's already started to
happen and it's likely to continue that production out of Iran is probably on a downward trend unless there
is a solution to the sanctions issue," he said, referring to talks in
Moscow next week that aim to break the deadlock over Iran's nuclear program.
Indeed, Iranian oil production is already down around 200,000 barrels a day
from around 3.5 million barrels a day at the end of last year due to sanctions,
Fyfe added.
Preliminary data for April and May on imports of Iranian crude into the EU show
a drop of nearly 1 million barrels a day below levels seen at the end of last
year, the report said. Some of that crude is going into storage onshore and at
sea in oil tankers.
Iranian oil held at sea rose by just over 10 million barrels over the course of
May to around 40 million to 42 million barrels, the IEA said, citing shipping
analysts.
"Clearly they [Iran] can't go on indefinitely putting crude into
storage," Fyfe said.
In May, OPEC kept its output steady at 31.87 million barrels a day as rising
Angolan, Nigerian and Libyan output offset slightly lower output from Saudi
Arabia and Iraq, the report said.
Saudi Arabia produced 10 million barrels a day in May, down 100,000 barrels a
day compared with April, the IEA said.
The IEA kept its forecast for demand for OPEC crude in 2012 unchanged at 30.3
million barrels a day, and raised its forecast for demand for OPEC oil in the
second half of this year by 100,000 barrels a day to 30.9 million barrels a
day.
Although the second half of the year appears to indicate that OPEC's current
output level would be around 1 million barrels a day above demand, that evens
out when risks to Iranian supplies as a result of the embargo and sanctions are
factored in, Fyfe said.
The IEA revised down its forecast for 2012 global oil demand by 100,000 barrels
a day to 89.9 million barrels a day on the muted economic backdrop, but left
its oil demand growth forecast nearly unchanged at 820,000 barrels a day.
The report said in April more oil flowed into inventories in the OECD, or the
world's most industrialized countries, leaving them above the five-year average
at 59.4 days of forward demand cover. However, oil stocks are building from a
relatively depleted base and are still below the five-year average in absolute
terms.
"It may look like oversupply, but actually it's replenishment of what was
a pretty tight stock situation at the tail end of 2011," Fyfe added.
Analysts at Bernstein Research said in a note that oil inventories would likely
continue to build even as Iran's output declines over the coming months.
"Oil markets are well supplied currently. This should reassure the market,
given the uncertainty over the ultimate impact of the imminent sanctions
against Iran," the note said.