International Energy Agency dims crude demand forecast but market is 'well managed'
Agency noted Opec+ had scope to increase production if needed over the coming quarter
Iran's oil supply coming off the market as well as other uncertainties are "being managed" by major crude producers, the International Energy Agency said.
"There have been clear and, in the IEA’s view, very welcome signals from other producers that they will step in to replace Iran’s barrels, albeit gradually in response to requests from customers," it said in its latest oil market report.
The Paris-headquartered agency also pared down its headline demand forecast for 2019 by 90,000 barrels per day to 1.3 million bpd, due to weaker growth expected from Brazil, China, Japan, Korea and Nigeria.
The slow demand growth will, however, be "short-lived" the agency noted, with a pick-up expected for the rest of the year. The IEA also warned of considerable imbalance on the supply side for the second quarter of the year, in spite of a surplus of 700,000 bpd over demand at the start of the year.
"As we move through the second quarter of 2019, while there is considerable uncertainty on the supply side, it is highly likely that the implied balance will flip into an indicative deficit of about the same size," the report said.
The supply constraints come amid tightening of US sanctions against Iran, one of Opec's key producers. The cancellation of waivers to Tehran's key oil buyers towards the end of April has pushed prices close to $75 per barrel. Around a million barrels from Iran are expected to come off the market, which has been feeling the squeeze from loss of production in Venezuela and Iraq.
Oil prices tanked over the last three weeks as the US-China stalemate over trade talks weighed on the markets.
Prices recovered by a dollar to $71 per barrel earlier this week, as attacks against four tankers off the coast of Fujairah, UAE as well as on a pipeline linking Saudi Arabia's eastern and western coasts, rattled the markets.
However, the IEA said benchmark Brent remained unchanged from a month ago, in spite of market uncertainty.
The agency noted that futures prices for crude were about $3 higher than current spot prices.
Contract prices were also on the rise with Asian customers now paying significantly higher to source crude from the Middle East to replace their relatively cheap supply of Iranian crude.
"Basrah Light, for example, was reported as offered at its highest level for nearly eight years," the IEA noted.
Opec+, which is undertaking output restrictions, had scope to "step up production" especially Saudi Arabia, which produced 500,000 bpd below allocation for April.
In its latest report, Opec projected crude demand for the third quarter to be higher by 1.17 million bpd.
Updated: May 16, 2019 11:25 AM