Energy prices could rise further due to OPEC failures, IEA warns
The International Energy Agency (IEA) has warned that energy prices and volatility in the sector could increase further due to supply problems within the group of major producing countries.
In its latest monthly report released on Friday, it said failure to deliver on pledges by members of the Organization of the Petroleum Exporting Countries (OPEC) and their allies has pushed oil prices to their highest levels since 2014.
Benchmark crude prices (BZ=F) rose more than 15% in January to cross the $90 (£66) a barrel mark for the first time in more than seven years. Global oil inventories at multi-year lows and dwindling spare capacity left the market with little cushion.
The group, OPEC+, which includes allies such as Russia, has increased supply in small increments in a bid to meet oil demand and reduce inventories since the height of the pandemic.
There were also signs the deficit was worsening, the IEA said, adding to the tightness of an already tight market.
OECD industrial oil inventories plunged 60mb in December to stand 255mb below the five-year average and the lowest level in seven years. Over the past 12 months, industry inventories have fallen by 355mb despite the release of more than 50mb of oil from government reserves during the same period.
“Further increases are expected in the coming months as new projects start up and U.S. shale continues to respond to rising prices. This has led us to raise our US oil supply growth forecast for 2022 to 1.2mb/d.
The Paris-based agency added that Saudi Arabia and the United Arab Emirates (UAE), the two oil producers with the most spare production capacity, could help calm volatile oil markets if they pump more raw.
The move could help relieve the dwindling global oil inventories that have recently helped push prices towards $100 a barrel – which has been one of the factors pushing inflation up.
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“If the persistent gap between OPEC+ production and its target levels continues, supply tensions will increase, increasing the likelihood of greater volatility and upward pressure on prices,” he said. said the IEA.
“But these risks, which have broad economic implications, could be reduced if Middle Eastern producers with spare capacity compensate those who are running out.”
OPEC+ has faced increasing pressure in recent months to increase supply thanks to stronger-than-expected demand. At their last meeting last week, the group said it would maintain its planned production increases of 400,000 barrels per day in March.
“OPEC+’s chronic underperformance in meeting its output targets and rising geopolitical tensions have propelled oil prices higher,” the IEA report said.
He added that effective spare capacity could fall to 2.5 million barrels per day (bpd) by the end of the year, almost entirely owned by Saudi Arabia and, to a lesser extent, by the United Arab Emirates.