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CALGARY — Ample crude supplies and a weak global economic outlook have pushed world oil prices to a 13-month low despite armed conflicts that have flared up in key producing regions.
Oil markets are “almost eerily calm” even as geopolitical risks abound in the Middle East and in other important energy regions, the International Energy Agency said in the August edition of its much-followed Oil Market Report.
The world is well supplied, after Saudi Arabia ramped up production past 10 million barrels a day, its highest in nearly a year, and its OPEC partner Libya eked out tentative gains. They have made up for losses in Iraq, Iran and Nigeria this summer, the IEA said. Meanwhile, North America’s oil-production renaissance has hummed along unabated.
At the same time, the IEA cut its oil-demand forecast for 2014 by 180,000 barrels a day, after crude deliveries in the Americas and Europe in the last quarter sank by 440,000 barrels a day and the global economy underperformed previous expectations. It trimmed its outlook for all-important Chinese demand growth to 2.9 per cent from 3.3 per cent.
London-traded Brent crude fell $1.66 (U.S.) a barrel to $103.02 on Tuesday, after hitting an intraday low of $102.65, its lowest since July, 2013. West Texas Intermediate, the North American benchmark, fell 71 cents to settle at $97.37.
“Despite armed conflict in Libya, Iraq and Ukraine, the oil market today looks better supplied than expected, with an oil glut even reported in the Atlantic basin, where surprisingly steep demand contraction recently compounded the effect of relentless North American supply growth,” the Paris-based IEA, the West’s energy watchdog, said in its report.
More-than-sufficient oil supply and shaky demand data suggest that without geopolitical tensions, the market could turn even weaker than it is. The situation adds more pressure to a Canadian energy sector that had been on a major rebound for most of the first half of the year, but has watched as commodity markets have retreated in the past two months.
However, Saudi Arabia would remain a wild card in the equation, and could cut its production to protect prices, just as it has increased it this year, said Martin King, analyst at FirstEnergy Capital Corp.
Today’s relative market stability puts into focus its capacity to adjust supplies when fellow OPEC members face threats to production levels. The shale revolution is playing into the mix with seemingly unstoppable growth in light crude supplies from regions such as the Bakken in North Dakota helping to push North America closer to self-sufficiency.
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