Oil prices set to soar on Iran, Venezuela crises

Paris-based International Energy Agency, a global energy think warns that global oil market could tighten leading to significant jump in prices unless spare capacity is produced to offset production declines from crises-ridden Venezuela and sanctioned-threatened Iran, in its oil market report released today.

“Since the previous edition of this report, the price of Brent crude oil fell close to $70 per barrel (bbl) and is now flirting with $80/bbl. Two reasons for the swing are that Venezuela’s production decline continues, and we are approaching 4 November when US sanctions against Iran’s oil exports are implemented. In Venezuela, production fell in August to 1.24 million barrels per day (mb/d) and, if the recent rate of decline continues, it could be only 1 mb/d at the end of the year,” the IEA said in a release announcing the report.

Citing evidence provided by their tanker tracking data, the agency believes that Iran’s exports have already fallen significantly “but we must wait to see if the 500 thousand barrel per day (kb/d) of reductions seen so far will grow. If Venezuelan and Iranian exports do continue to fall, markets could tighten and oil prices could rise without offsetting production increases from elsewhere.”

But there are countries who are also improving capacity, last month Saudi Arabia and Iraq combined saw output increase by 160 kb/d. In Iraq’s case, exports have grown to such an extent that they are greater than Iran’s production, and there is still about 200 kb/d of shut-in capacity in the north of the country due to the ongoing dispute with the Kurdistan Regional Government.

“Based on our August estimates of production, OPEC countries are sitting on about 2.7 mb/d of spare production capacity, 60% of which is in Saudi Arabia. But the point about spare capacity is that, having been idle, it is not clear exactly how much, beyond what is widely thought to be “easy” to bring online, will be available to coincide with further falls in Venezuelan exports and a maximisation of Iranian sanctions,” said the report.

Meanwhile oil price rallied $79.64 a barrel and briefly broke above $80 on Wednesday after a drop in U.S. crude inventories by 5.3 million barrels last week and as the prospect of the loss of Iranian supply added to concerns about balancing demand and supply. It still hovers around $79 but analysts believe it could rise to $100 per barrel.