Oil prices are unlikely to increase as ‘sharply’ from now on – IEA

The International Energy Agency (IEA) believes a recent spike in the oil price could soon start to ease, helping to alleviate concerns that surging prices could hurt demand and global economic growth.

“Prices are unlikely to increase as sharply as they did from mid-2017 onwards and thus the dampening effect on demand will be reduced,” the Paris–based organization said in its latest monthly report published Wednesday.

Rising oil prices have created question marks over the strength of demand, but the IEA left its oil demand growth forecast for 2019 largely unchanged, at 1.4 million barrels a day (mb/d), similar to this year’s level.

However, it cautioned that there are possible downside risks to the demand outlook, including “the possibility of higher prices, a weakening of economic confidence, trade protectionism and a potential further strengthening of the U.S. dollar.”

In terms of supply, the IEA revised upwards its estimate for 2018 non-OPEC production growth to 2 mb/d and said 2019 would also see what it called “bumper growth” of 1.7 mb/d. Most of that non-OPEC supply growth would come from the U.S., it said.

The IEA’s latest report comes amid uncertainty over the amount of oil production we can expect to see from major producers in coming months.

OPEC and non-OPEC producers including Russia are continuing with a deal to curb their supply, but the strategy is seen to have been effective with Brent and West Texas Intermediate (WTI) now trading around $75 and $66, respectively.

The OPEC and non-OPEC producers agreed back in November 2016 to curb supply in order to boost then-low oil prices.

There are now fears that prices could rise steeply if supplies are disrupted from OPEC members Venezuela and Iran.

The former is experiencing economic turmoil and the latter is facing a re-imposition of sanctions after the U.S. withdrawal from Iran’s nuclear deal.

OPEC and non-OPEC producers are meeting in Vienna on June 22 to discuss the supply situation.

The encounter could be fractious with arguments expected between producers over whether to increase production or maintain supply as it is — given rising prices and potential supply disruptions.

There is also the specter of competition from U.S. shale oil producers and a reluctance to cede more market share to them.

Source: CNBC