The International Energy Agency made a direct appeal to OPEC and other major oil producers to boost output, warning that prices are inflicting damage on the global economy.
“We should all see the risky situation, the oil markets are entering the red zone,” IEA Executive Director Fatih Birol said Tuesday. “We should try to comfort the markets all together because it may be bad news for the consumers, importers today, but I believe it may well be bad news for the producers tomorrow.”
The IEA, which advises most major economies on energy policy, said last week that rising crude prices may dent demand in some of the world’s fastest-growing nations unless producers take steps to boost supplies. Birol has welcomed efforts by top OPEC producer Saudi Arabia to increase output, but believes market tightness is likely to persist.
“If there are no major moves from the key producers, the fourth quarter of this year is very, very challenging,” he said in a Bloomberg television interview. Much of the onus lies with Saudi Arabia, as most other members of the Organization of Petroleum Exporting Countries are producing at, or close to, full capacity.
Birol’s warning follows a 20 percent surge in crude prices since August as OPEC struggles to fill the gap left by tumbling shipments from several members. Prices were boosted further on Tuesday by storm Michael, which shut some oil fields in the Gulf of Mexico and threatened to hit the Florida panhandle as a major hurricane.
West Texas Intermediate futures advanced 0.8 percent to $74.88 a barrel on the New York Mercantile exchange as 6:41 a.m. local time.
“Demand is still very strong and we’ve been losing oil from Venezuela in big amounts, and also Iran is going down,” Birol said. Venezuela’s “free-fall” could drag production below 1 million barrels a day “very soon,” he said. By contrast, Saudi Arabia, currently pumping about 10.7 million barrels a day, could go to 11 million a day, according to the IEA.
Iran’s exports have dropped faster than most in the industry expected, with many major buyers halting purchases even before U.S. sanctions are enforced in November. In Venezuela, output has slumped amid economic collapse.
“Expensive energy is back at a bad time, when the global economy is losing momentum,” Birol said. “We really need more oil.”