(MENAFN - Arab News) Oil prices are in three digits - for some time now. Yet despite the spike, the supply side of the global equation is not being blamed as 'markets are well supplied.' The tide apparently has turned, with the tightness in the global oil markets seen over the past two years, finally beginning to ease, the International Energy Agency is now conceding.
And there seems no overt pressure on the producers, the OPEC, to open the taps. In its latest monthly report, the Paris based IEA, the consumers' watchdog, formed by the likes of Henry Kissinger, in the aftermath of the 1973 Arab oil embargo, is insisting, market tightness is easing. The first-quarter supply and demand fundamentals "show a clear shift from the seemingly relentless tightening evident over the prior 10 quarters."
However, explaining the continued price spike, the IEA points out the "ongoing geopolitical uncertainties," particularly over Iran's nuclear program. And this meant that for now the apparent market easing was not translating into significantly lower oil prices.
What a turnaround indeed!
No more the onus is on the producers. No more the OPEC is the usual punching bag. In another, rather normal times, the IEA would have been drumming the need for producers to open their taps, further and further. Not this time. Interesting, in more than one ways, indeed!
Politics continues to be hand in hand with oil, one can't help admitting.
With consumers now attempting to squeeze Iran out of the equation, indeed the IEA is politically not in a position to term the embargo as the culprit. It has to provide some sense of normality - to the entire situation - and so it appears doing.
Interestingly though, as the Western sanctions are beginning to bite Iran, the emerging market conditions are appearing to 'have been reversed' what was until recently, a steadily tightening oil markets, the Paris based International Energy Agency (IEA) is now insisting. "The cycle of repeatedly tightening fundamentals evident since 2009 has been broken for now," meaning that the oil market could remain balanced this summer even as almost a million barrels a day of Iranian oil is taken off the market by sanctions, the International Energy Agency said last Thursday in its April Oil Report.
Global oil inventories were boosted by as much as 1.2 million barrels a day in the first quarter as production from members of the Organization of Petroleum Exporting Countries ran ahead of demand by more than a million barrels a day, and Saudi Arabia and China stockpiled oil, the report pointed out.
Oil stocks in rich countries increased by around 500,000 million barrels a day in the first quarter, while preliminary data indicate that Saudi Arabia and China added another 700,000 barrels a day to their oil stores. Much of the stockpiling has been driven by fear of oil supply disruption stemming from the standoff with Iran. Saudi Arabia, which has already boosted daily output to a 30-year high of 10 million barrels a day, has been attempting to calm the markets, reiterating several times in recent weeks too that Saudi Arabia wanted to see a lower oil price. The IEA said that Saudi Arabia has also reduced its selling prices for benchmark Arab Light for both European and Asian customers.
However, in the same breath, the report did underline that Iran's crude exports were beginning to tumble under the weight of sanctions. In sharp contrast to Iranian claims, the IEA says that the country's average oil production in the first quarter was down more than 350,000 barrels a day compared with the same period in 2011.
Iran's oil production is in long-term decline, but the reduction last quarter was almost 20 times larger than the average year-on-year decrease in the same period in 2011 and 2010, suggesting that sanctions are having a marked impact on the country's ability to sell oil.
"Iran's traditional crude buyers are struggling to arrange payment mechanism, secure ships to lift the oil and insurance companies to underwrite the trade," the IEA said.
In normal circumstances, this could easily have been a red flag to the IEA - indeed not this time - and for obvious reasons.
OPEC, responsible for 40 percent of global supply, has "already shown that they can step in to fill the gap and replace lost volumes," the agency said. The MOR says the total OPEC oil production rose by 135,000 barrels a day to 31.43 million barrels a day in March, largely due to higher Iraqi output. This is 1.3 million barrels a day above the level of crude production needed from the group on average this year to meet demand, meaning that oil inventories received a boost. Global oil stocks hence are being reported healthier than they were earlier in the year. The IEA said the deficit of inventories in industrialized countries compared to the five-year average narrowed to 13.9 million barrels in March, from 40.4 million barrels in January this year.
Output growth outside OPEC may also have a "calming effect on prices as the year progresses," the IEA predicted. The non-OPEC oil production, which has consistently fallen short of expectations in recent months, appears to be the key to balancing the supply-demand equation this year, the IEA report emphasized. The amount of oil production outside OPEC, shut down due to technical or political problems, are reported to have risen by 500,000 barrels a day to 1.2 million barrels a day. The overall non-OPEC oil supply growth projected for the year currently stands at 700,000 barrels a day, compared with an increase in demand of 800,000 barrels a day.
A monthly report from Organization of Petroleum Exporting Countries also echoed the IEA's assessment that supply levels are adequate. "The oil market is well-supplied," the OPEC report too said. "High prices cannot be justified by the current market fundamentals. Instead it is more the impact of geopolitical factors and a perceived shortage of oil, rather than evidence of any actual or impending shortfall, that is keeping prices high."
The emerging geo-political scenario has pushed major global energy stakeholders on the same page, and it would be viewed with a sense of relief in major global capitals today. Behind the scene wheeling and dealing is paying off - finally!
By SYED RASHID HUSAIN