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.