Crude has rallied to a seven-year high above $90 a barrel as demand bounces back from the pandemic while supplies around the world lag behind. Plagued by under-investment and disruptions, the 23-nation OPEC+ alliance has been unable to fully restore the output it halted — a problem the IEA expects to worsen.
With oil inventories at the lowest in seven years, the agency sees markets facing further strain.
“The oil market is incredibly tight,” Toril Bosoni, head of the agency’s markets and industry division, said in a Bloomberg television interview on Friday. “Prices continue to surge and are now reaching levels that are uncomfortable for consumers across the world.”
By the end of the year, the shortfall between the amount of oil OPEC+ was supposed to have pumped and what it actually delivered since the start of 2021 could amount to 1 billion barrels, the IEA estimates. Rising prices have been an acute source of pain for major economies, fanning a surge in inflation and inflicting a cost-of-living crisis on millions.
“If the persistent gap between OPEC+ output and its target levels continues, supply tensions will rise, increasing the likelihood of more volatility and upward pressure on price,” the Paris-based agency said in its monthly report.
Still, the economic shock could be averted if those members of the Organization of Petroleum Exporting Countries that possess extra reserves deploy them.
“These risks, which have broad economic implications, could be reduced if producers in the Middle East with spare capacity were to compensate for those running out,” the agency said.
Saudi Arabia, OPEC’s de facto leader, holds the bulk of the group’s spare capacity. It has so far resisted the idea of tapping those reserves more quickly, contending that the individual quotas set by the OPEC+ agreement should be respected.
Despite the IEA’s warnings, its forecasts still indicate that world oil markets will tip back into surplus for the rest of this year as supplies outside of OPEC+ pick up. The agency revised up its forecast for U.S. oil supply growth in 2022 by 240,000 barrels a day to 1.2 million barrels a day.
The agency also made substantial increases to its historic demand estimates for the past few years, with an upgrade of 1 million barrels a day for 2021. The revision helps account for a discrepancy between the IEA’s theoretical estimate of changes in stockpiles and what could be detected.