Oil markets to ease as supply improves, says IEA

LONDON / SEOUL - Reuters

Global oil supplies look comfortable despite a massive outage in Libyan output and oil prices could see some downward pressure if sharp currency depreciation in emerging markets leads to softer demand, the International Energy Agency (IEA) said. Also, Saudi Oil Minister Ali al-Naimi said the country was ready to supply needed crude to meet demand.

The IEA, which coordinates energy policies for developed economies, said global oil supply was set to jump in the next months thanks to a mix of seasonal, cyclical and political factors and notwithstanding the Libyan problems.

“While the geopolitical storms in the Middle East and North Africa have yet to pass, easing fundamentals look set to lessen the pressure somewhat on market participants - at least for the next few months,” the IEA said in its monthly report.

Oil prices rallied to six‐month highs in August amid expectations of Western military strikes in Syria and as Libyan production plunged to a tenth of capacity due to protests at fields and terminals in the worst disruption since the 2011 revolution.

But the IEA said even if Libyan production remained disrupted for the rest of the year, the winding down of seasonal field maintenance in the North Sea and the U.S. Gulf of Mexico shall bolster supply in the fourth quarter of 2013.

“New North American production - including U.S. light tight oil and Canadian synthetic crude - continues to surge. Saudi production is hovering near record highs, even as a seasonal dip in domestic air-conditioning demand looks set to free up more barrels for export,” it added.

Saudi Arabia promises oil supply

Besides, Saudi Arabia is ready to supply whatever volume of crude is needed to meet demand, Ali al-Naimi said yesterday.

Saudi Arabia produced record high volumes of crude in August as it boosted output for the second time in two years to cushion the global oil market from supply disruptions. Naimi’s comments come after producer group OPEC this week sought to reassure consumers there is sufficient supply to cover a plunge in Libya’s output.

“For the record, oil market fundamentals are good. The market is well balanced,” Naimi said at an industry event. “I repeat the message that Saudi Arabia is willing and capable for meeting any demand.”

Despite rising Saudi output, benchmark Brent crude prices spiked above $117 a barrel in late August on the virtual shutdown of Libyan oil output and the prospect of U.S. military action against Syria.

Demand growth forecast unchanged

The agency left its global demand growth estimates for 2014 broadly unchanged compared to its report last month at 1.1 million barrels per day, up from 895,000 bpd in 2013, as it said the underlying macroeconomic situation improved.

Global oil demand is projected to average 92.0 million bpd in 2014. But it said demand could see some downward pressure in emerging economies whose currencies have depreciated steeply in recent months.

Some currencies in Asia and Latin America have been hit hardest by expectations that the U.S. Federal Reserve will slow its bond-buying program, which would lead to a strengthening of the dollar.

The Indian rupee lost nearly one‐third of its value in the four months to the end of August and other countries such as Indonesia, Malaysia, Peru, the Philippines and Thailand have also seen their currencies weaken.

“If sustained, this may ultimately curb their demand trend or, in countries where oil subsidies are in place, raise pressure on their governments to reduce those subsidy programs,” the IEA said.