The price of crude oil was higher today, although the longer-term outlook is more mixed.
According to the 30-nation International Energy Agency (IEA), demand is holding steady and the crisis in Venezuela could provide opportunities for other oil producers to make up lost supply.
But by 2021, the US will become a net oil exporter, not only denying the country’s huge appetite for oil to the international market but selling its own crude in competition with traditional producers.
Growing importance of US
At present, said the IEA, the political crisis in Venezuela is helping to support prices by taking oil out of circulation. Venezuela is ranked the tenth-largest oil producer in the world, and the IEA said the “degradation” of the country’s electricity system was hitting output.
But it added that spare capacity elsewhere means that “in the event of a major loss of supply from Venezuela, the potential means of avoiding serious disruption to the oil market is theoretically at hand”.
The IEA noted: “A key theme is the growing importance of the US in global markets. Rising production there is not a new story; what is game changing is that the US in 2021 will become a net oil exporter on an annual average basis.
“With Canadian production also increasing, and most of its exports moving to US refineries, this frees up US crude for export.”
It added: “The rising profile of the US not only brings greater choice to consumers, but, crucially, it enhances security of supply, especially when, as now, there are heightened geo-political concerns.”
No help from Saudi consumers
In December 2016, following two years of falling prices, the 14-nation Organisation of Petroleum Exporting Countries (OPEC) and a group of oil producers who are not members of the cartel but are sympathetic to its aims signed the first of a series of deals to curb production, thus bolstering the price.
The IEA is forecasting world oil demand to rise this year from 1.3 million barrels a day in 2018 to 1.4 million. While figures for developed markets in the Americas were more sluggish than expected, this was balanced by higher demand in the Middle East and Asia.
It added: “The economic forecasts underpinning our forecast are largely unchanged, although we see further weakness emerging in Europe.”
Ironically, given its key role as the world’s second-largest crude producer, Saudi Arabia was doing little to help bolster sales of the country’s best-known product, according to the IEA, which noted that “oil demand continues to be extremely weak”.
The IEA was founded in 1974 in the wake of the energy crisis that erupted the previous year. Membership is concentrated among oil consuming countries, rather than producers, such as those of western Europe, along with India and China.
Exceptions include producer-members Britain, Norway, Mexico and Indonesia.