According to IEA, global oil demand and supply are close to historically significant peaks at 100 mb/d, and neither show signs of ceasing to grow. Production has increased, driven by the US shale revolution, and supported by big increases in Brazil, Canada and elsewhere.
In the future, a large amount of potential supply could come from Iran, Iraq, Libya, Nigeria and Venezuela, if their challenges are addressed. IEA also notes that rising living standards, particularly in developing countries, are highlighting strong demand growth for plastics and this will continue for many years to come.
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As the oil market reaches 100 mb/d level, prices will be rising steadily. Brent crude oil is now over $80/bbl, with infrastructure constraints causing North American prices to lag. However, expensive energy is back, with oil, gas and coal trading at multi-year highs, challenging economic growth.
Moreover, current high oil prices are partly indicative of very high crude which runs 100 during recent months and also supply fears as sanctions against Iran draw near. In fact, since May, when the US announced its withdrawal from the JCPOA, the Vienna Agreement parties, plus Libya and Nigeria, have increased total oil production by a 1.6 mb/d. In the meantime, total US supply has increased by 390 kb/d. China has also experienced the first year-on-year production growth in almost three years in response to higher prices.
The increase in net production from key suppliers since May along with the fact that oil stocks built by 0.5 mb/d in 2Q18 and look likely to have done the same in 3Q18, shows that the oil market is adequately supplied for now. Nevertheless, IEA notes that with Iran’s exports possible to fall by more than the 800 kb/d, and the threat of supply disruptions in Libya and a collapse in Venezuela, the market is concerned that more supply might be needed.
Finally, recent production increases come at the expense of spare capacity, which is down to only 2% of global demand, with further reductions likely to come, IEA concluded.
You may see more information in IEA’s Oil Market Report.