Venezuela’s oil production collapse and the loss of Iranian barrels after the reimposition of US sanctions could take 1.5m barrels off the market by the end of 2019 from these countries alone.
The “scenario” from the International Energy Agency, in its latest monthly oil market report, assumes a loss from Iran similar to the previous round of sanctions on the Opec country.
For Venezuela, the IEA sees “no respite” in the drastic drop in production that has worsened over the past two years as the country’s political and economic upheavals spill over into the energy sector.
The production fall from Iran and Opec peer Venezuela, and any further disruption, leave the oil market “vulnerable” to a further escalation in prices, the IEA said. Brent crude rose above $80 a barrel in recent weeks before retreating slightly.
“Potential losses from Venezuela and Iran could require others to produce more,” the IEA said, warning a “supply gap” could emerge should Opec peers continue to pump at current levels.
The drop in Venezuela has already taken cuts well above the 1.8m b/d global producers, inside and outside the Opec cartel, said they would target as part of a supply curbs deal that began in January 2017.
Energy ministers from Opec and Russia will meet next week in Vienna to debate increasing production after coming under pressure from big consumer countries.
US officials have quietly spoken to producers, widely assumed to have included Saudi Arabia, about raising output to prevent any further price spike triggered by a loss in Iranian barrels.
While the kingdom and Russia have debated an increase of 1m b/d there are questions over how any raises would be shared among producers and how quickly this would take place.
Saudi Arabia has enacted the largest share of cuts as the biggest producer within Opec, but as one of the few holders of substantial spare production capacity it would also benefit the most from a big increase.
“It is possible that the very small number of countries with spare capacity beyond what can be activated quickly will have to go the extra mile,” the IEA said.
The IEA estimates Middle East Opec countries could increase production quickly by about 1.1m b/d. Opec crude supply edged up 50,000 b/d in May to 31.7m b/d as Saudi Arabia and Iraq offset falls from Venezuela.
Adequate supply will be important as demand growth remains robust at 1.4 mb/d this year, taking total consumption to 99.1m b/d. For 2019, demand is expected to grow by 1.4m b/d with the total surpassing 100m b/d for the first time.
Global oil supply rose 276,000 b/d in May, to 98.7 mb/d, as non-Opec output – led by the US – rose further. Non-Opec supply will grow by an upwardly revised 2m b/d in 2018, easing slightly to 1.7m b/d next year and compensating for any big losses elsewhere.
“The US continues to dominate the expansion,” the IEA said, even as it noted that infrastructure and logistical constraints are likely to cap gains.
