Oil market fundamentals could become much tighter in the second half of 2012 if EU and US sanctions keep more than 1 million b/d of Iranian oil exports off the market and non-OPEC output disruptions take a turn for the worse, the head of the International Energy Agency's Oil Industry and Markets Division said Friday.
The IEA estimates that EU and US sanctions on Iranian oil exports means that 1 million b/d of Iranian crude may struggle to find markets from July, the IEA's David Fyfe said.
Although US crude stocks are now higher than a year ago and OPEC has stepped up to boost supplies in recent months, production stoppages from Sudan, Syria, Libya and other non-OPEC producers remains a threat to markets, he said.
"The [current market] situation is not as alarming as it was a year ago," Fyfe told an oil conference in London. "But if we get the loss of more than 1 million b/d or Iranian supply and more non-OPEC supply continues to disappoint to the downside, we could have a much tighter, more jittery, much more volatile market in the second half [of 2012]."
To date, Fyfe said the IEA is estimating that non-OPEC outages this year will average 1 million b/d, but did not give a comparative figure for 'normal' non-OPEC supply disruptions.
Fyfe said one of the key questions hanging over the oil markets from July remains the will and ability of OPEC-kingpin Saudi Arabia to boost export to make up for the impact of Iranian sanctions.
Saudi Arabia has already backed most of OPEC's output rise this year, raising question marks over how much OPEC's spare production capacity has been reduced as a result, Fyfe said.
Last week, Fyfe estimated current Saudi production at 10 million b/d compared to a sustainable oil production capacity at just under 12 million b/d.
Overall, OPEC spare capacity currently lies at around 2.5 million b/d, Fyfe said. Asked if the IEA is planning a coordinated release of strategic oil stocks to help soften oil markets after the sanction hit, Fyfe reiterated that the IEA is ready to act if the market conditions call for more oil liquidity.
"We've got a more comfortable level of stocks but 2.5 million b/d of spare capacity is not a lot. There are geopolitical risks and we are not complacent [at the oil market fundamentals]," he said.
"It's really an evolving situation, something we're going to keep watching. All options are on the table. There isn't a specific plan at the moment for an IEA collective action but we'll be watching," he said.
OPEC production has risen about 1 million b/d in the first quarter of 2012 compared to the last quarter of 2011, he said, a factor which is currently keeping the markets relatively well supplied.
"Higher OPEC supply in the first quarter...and concerns over the [global] economy is providing a ceiling for prices at the moment," Fyfe said.
In Asia, the pace of China's recent buying of crude to fill its strategic oil stocks remains another key variable which will tighten oil market fundamentals this year, he said.
