December 1, 2022

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IEA says oil markets are set to tighten significantly unless OPEC standoff resolved

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Via its monthly report, released Tuesday, the International Energy Agency (IEA) said oil prices would be volatile until differences were resolved.

The differences boil down to the United Arab Emirates seeking an increase in outs output quota and Saudi Arabia say “No” (I’m simplifying).

IEA:

  • “The OPEC+ stalemate means that until a compromise can be reached, production quotas will remain at July’s levels. In that case, oil markets will tighten significantly as demand rebounds from last year’s COVID-induced plunge” 
  • “The possibility of a market share battle, even if remote, is hanging over markets, as is the potential for high fuel prices to stoke inflation and damage a fragile economic recovery”

Background to this is:

  • the glut of oil amassed during the pandemic has been cleared 
  • demand is now set to rebound by strong 5.4mb/d
  • thus a deepening supply deficit, which can drive high prices 
  • hopes of additional Iranian oil hitting the market appears distant still, the US and Iran are still at an impasse on sanction
  • growth in the US shale output is marginal at best

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