In a stark warning, the International Energy Agency (IEA) has raised concerns over oil price volatility as Saudi Arabia and Russia embark on substantial oil supply cuts. These measures are poised to create a “significant supply shortfall,” posing serious risks to the global oil market, the IEA cautions.
The IEA’s latest report projects a deficit of 1.2 million barrels per day in the latter half of 2023. While this is a reduction from previous estimates, reflecting changes in demand patterns, it remains a matter of concern for consumers.
Even if Saudi Arabia and Russia were to ease their production curbs in early 2024, the IEA warns of severely depleted oil inventories, leaving prices susceptible to unpredictable spikes. This concern has already manifested in Brent futures, which surged to over $92 a barrel recently.
Toril Bosoni, head of the IEA’s oil market division, emphasized this tightening market, noting a significant 75 million-barrel drop in global oil inventories in August alone.
The actions of Saudi Arabia, Russia, and the OPEC+ alliance have frequently been described as measures to stabilize markets. However, the IEA’s analysis of OPEC+ data points to a growing supply shortfall, exceeding 3 million barrels per day in the next quarter, the largest such gap in at least a decade.
The IEA cautions that such reduced oil stocks pose a risk of heightened volatility, which is neither in the interest of producers nor consumers, given the fragile global economic environment. The agency advises major oil-consuming nations, including the United States.
For President Joe Biden, this situation could become a political challenge as he gears up for a re-election campaign amid voter concerns over high inflation and near-$4-per-gallon gasoline prices. The IEA’s apprehension extends to the impact of elevated prices on the global economy and the pace of monetary easing.
The IEA’s report represents a marked critique of the Saudi-Russia partnership, citing the energy disruption and inflationary pressures resulting from Russia’s conflict with Ukraine. The agency characterizes this alliance as a formidable challenge for oil markets and anticipates a substantial supply deficit persisting through the fourth quarter.
Tensions between the IEA and oil-producing nations have simmered in recent years, with the IEA criticizing OPEC+ for pressuring consumers while Riyadh rebukes the agency’s projections regarding the shift away from fossil fuels.
In a broader context, the IEA’s Executive Director, Fatih Birol, has hinted at a momentous transition away from fossil fuels. He believes oil demand may reach its peak this decade as consumers increasingly turn to renewable energy to combat climate change. This shift could mark the beginning of the end for the fossil fuel era.
While the IEA has revised its global oil demand estimates downward, reflecting changes since 2022, it still anticipates record-breaking world consumption. Consumption is expected to rise by 2.2 million barrels per day in 2023, reaching an all-time high of 101.8 million barrels per day, with China accounting for a significant portion of this growth.
However, this growth is expected to slow considerably in 2024, aligning with weaker global economic expansion and a reduced reliance on oil for transportation as alternative energy sources gain prominence, according to the IEA.