The International Energy Agency cut forecasts for growth in global oil demand, noting that fears of an economic slowdown are overshadowing the loss of supply during last month’s attack on Saudi Arabia.
The strike on the kingdom’s production facilities caused the biggest disruption in modern history, halting about 6% of world oil supply, the agency said. Nonetheless, after a brief rally, crude prices have eased back amid concerns of a global recession. The IEA trimmed projections for demand growth this year and next by 100,000 barrels a day.
“There should be talk of a geopolitical premium on top of oil prices,” the Paris-based agency, which advises major economies, said in a monthly report. “For now, though, there is little sign of this with security fears having been overtaken by weaker demand growth and the prospect of a wave of new oil production” from the U.S. and the North Sea.
The IEA warned that, after Saudi Arabia’s Abqaiq and Khurais facilities were blasted by missiles and drones on Sept. 14, “further incidents of this nature” could happen.
It may already have been proven correct, with reports on Friday that an Iranian oil tanker had caught fire following an explosion. Brent crude futures rose as much as 2.3% to trade above $60 a barrel, the highest in more than a week.
Global markets are poised to tighten during the rest of the year as demand recovers and the Saudis and other OPEC nations keep a lid on output, the IEA predicted. The agency assumes consumption may expand by 1.6 million barrels a day in the second half of 2019, four times as much as in the first.
Still, prices are no higher than they were before the attack on the kingdom, as the trade dispute between Washington and Beijing and signs of a manufacturing slowdown stoke fears of a full-blown recession.
Global oil demand will increase this year by the least since 2016, by just 1 million barrels a day, while growth in the amount of crude processed by refineries worldwide will be the lowest in a decade, at just 150,000 a day, according to the IEA.
Even though demand growth will accelerate next year to 1.2 million barrels a day, a further surge in production from the U.S. and elsewhere could unleash another surplus, the report showed.
While the attacks in Saudi Arabia squeezed output in the Organization of Petroleum Exporting Countries to the lowest since 2009, the IEA’s report indicated that the group is still pumping more than will be needed in the first half of 2020. OPEC’s 14 members produced 28.83 million barrels a day last month, yet only 28.2 million a day will be required in the first six months of next year.
Faced with the prospect of a renewed price slump that would curtail revenues for members, OPEC Secretary-General Mohammad Barkindo said in London on Thursday that the organization will do “whatever it takes” to keep markets in balance.
© 2019 Bloomberg L.P.