Oil Supply Deficit Looms: IEA Warns Output Cuts by OPEC+ Producers Could Exacerbate Crisis.

The OPEC logo pictured ahead of an informal meeting between members of the Organization of the Petroleum Exporting Countries (OPEC) in Algiers, Algeria, September 28, 2016. REUTERS/Ramzi Boudina/File Photo

The decision by OPEC+ producers to cut output risks further exacerbates an already expected oil supply deficit in the latter half of 2023, which could hurt consumers and slow global economic recovery, warns the International Energy Agency (IEA).

In recent months, OPEC+ and the IEA have clashed over their projections of global oil supply and demand. The IEA has warned that tightening supplies could lead to rising prices and a possible recession, while OPEC+ blames Western monetary policies for market volatility and inflation that undermines the value of its oil.

According to the IEA's monthly oil report, the latest cuts increase the strain on oil market balances, pushing crude and product prices even higher. This move will further harm consumers who are already struggling with inflation.

The IEA predicts a record oil demand of 101.9 million barrels per day in 2023, up 2 million barrels per day from last year and in line with its projection last month.

On the other hand, OPEC+ termed its surprise cut a "precautionary measure" and in its monthly oil report, it pointed out the downside risks to summer oil demand from high stock levels and economic challenges.

The IEA expects global oil supply to fall by 400,000 barrels per day by the end of the year, as a result of an expected production increase of 1 million barrels per day from non-OPEC+ countries, including the United States and Brazil, while the producers' bloc faces a decline of 1.4 million barrels per day.

Rising global oil stocks may have played a role in OPEC+'s decision, the IEA noted, highlighting that the Organisation for Economic Cooperation and Development (OECD) industry stocks reached their highest level since July 2021 in January at 2.83 billion barrels.

The demand outlook is expected to vary between slow growth in OECD countries and rebounding demand in China after the easing of COVID-19 restrictions, according to the IEA.

Meanwhile, despite facing a seaborne import ban from the European Union and a price cap sanctions policy by the United States, Russia's oil exports in March hit their highest level since April 2020 due to robust oil product flows, according to the IEA. Russia's revenue rose to $12.7 billion, up by $1 billion month-on-month but still 43% lower than a year earlier, partly because of capped prices on its seaborne oil exports.

The situation is further complicated by the ongoing conflict between Russia and Ukraine, which could potentially disrupt oil and gas flows through pipelines that cross Ukraine.

The IEA has urged OPEC+ to "keep the market well-supplied" and to "remain vigilant" in the face of potential disruptions, warning that any sudden oil supply shock could have severe consequences for the global economy.

In the long term, the IEA has called for greater investment in renewable energy and alternative fuels to reduce the world's dependence on oil and mitigate the risk of future supply shocks.

Despite these challenges, the global oil market remains resilient, with prices hovering around $70 per barrel, a level not seen since 2018. However, consumers and policymakers will need to keep a close eye on developments in the coming months to ensure that the world's energy needs are met in a sustainable and equitable manner.

By

Gbolahan Alabi-Isama MS.