Oil markets could face the sharpest supply shortage in more than a decade at the end of this year due to extended output cuts by major producers Saudi Arabia and Russia, the International Energy Agency (IEA) warned on Wednesday.
A “significant supply shortfall” may trigger price volatility on the market amid insufficient global inventories, the agency said. It expects oil markets to face a deficit of 1.2 million barrels per day (bpd) in the second half of the year after Moscow and Riyadh announced plans to extend export and output cuts for the duration of 2023.
Meanwhile, the Organization of Petroleum Exporting Countries (OPEC) said in a separate report on Tuesday that the shortfall may reach 3.3 million bpd in the fourth quarter if leaders of the OPEC+ group maintain their production cuts.
Last week, Russia announced it would extend its voluntary cut in oil exports by 300,000 bpd by the end of the year to balance global oil markets. Riyadh followed suit and also extended its 1 million bpd voluntary production cut through December.
Crude inventories will be severely depleted by 2024 even if Moscow and Riyadh were to lift their curbs, exposing oil prices to “shocks,” the IEA warned. Global benchmark Brent climbed above $92 per barrel on Wednesday, while US West Texas Intermediate (WTI) crude traded at almost $89 per barrel.
“The market is really tightening in the second half of the year,” Toril Bosoni, the head of the IEA’s oil market division, told Bloomberg. “Already in August we saw global oil inventories falling by a massive 75 million barrels, according to preliminary data.”
Oil prices have rallied by more than 25% since late June amid increasing global fuel demand, and may soar back above $100 a barrel, according to forecasts by JPMorgan Chase & Co. and RBC Capital Markets.
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