IEA Warns Operational Problems Caused By Arab Rift With Qatar

The International Energy Agency (IEA) warned Wednesday that “logistical headaches” could be caused by the ongoing dispute between several Middle East countries and Qatar.

The political dispute has become an operational problem for lifters of Qatari crude, condensate and LNG (liquefied natural gas) although it hasn’t yet disrupted supplies, the IEA noted in its latest oil market report.

Accusing Qatar of backing terrorist groups, which the later denies, seven countries, including Saudi Arabia and the United Arab Emirates have cut diplomatic ties with Qatar.

“Abu Dhabi swiftly enforced a ban on oil tankers linked to Qatar calling at ports in the UAE, which could lead to a backlog of cargos and increased shipping costs,” the IEA said in the report.

“Qatar pumps just over 600 thousand barrels a day of crude and exports some 500 thousand barrels a day, almost exclusively to Asia. Buyers often co-load cargoes from elsewhere in the Gulf, typically sold as 500,000 barrel lots, onto larger tankers to reduce shipping costs. Due to the political row, crude from Saudi Arabia, the UAE and Bahrain cannot be co-loaded with Qatari crude, limiting co-loading of Qatari grades to crude from Iran, Iraq, Kuwait and Oman, which are not part of the dispute,” the IEA said Wednesday.

The IEA report showed that despite an ongoing deal to cap production, OPEC crude output increased in the month of May despite an ongoing deal to cap production, the IEA report showed.

In what is the highest level seen so far this year, OPEC crude output rose by 290,000 barrels per day in May to 32.08 million barrels a day. The IEA noted that Libya and Nigeria, which are exempt from supply cuts, are the primary reasons for this as these two countries restored oil production.

“Output from members bound by the production deal edged lower, which kept year-to-date compliance strong at 96 percent,” the report said.

The IEA report also showed that in May, the global oil supply also increased by 585,000 barrels per day to 96.69 million barrels a day in May. And therefore this resulted in the highest annual increase since February 2016 as output grew from a year ago by 1.25 million barrels a day.

Agreement on extension of their output cut deal into 2018 was reached between the world’s largest oil producers in May. However, the market was not impressed even as OPEC and 11 non-OPEC members, including Russia, signed the deal. Following their decision, brent fell almost 4 percent.

“Reflecting lower expectations about the pace of global market rebalancing,” crude prices dropped more steeply after OPEC countries decided to extend their output deal, the IEA said in the report, even as it also noted that prices dropped by about $1.50-2.50 a barrel on average in May, according to the IEA.

Following an OPEC report also detailing that overall production rose in May, oil prices moved slightly lower early on Wednesday.

Nonetheless, oil demand is set to increase in 2018 albeit modestly, the IEA has forecast.

“Demand averages 97.84 thousand barrels a day in 2017, rising to 99.27 thousand barrels a day in 2018 and breaching the psychologically important 100 thousand barrels a day threshold in the fourth quarter of 2018,” the IEA said.

(Adapted from CNBC)

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Categories: Economy & Finance, Uncategorized

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