The head of International Energy Agency warned Tuesday that oil prices are set to enter the “red zone” during the fourth quarter of 2018, threatening to hit demand growth as the strength of global economy falters. The loss of Iranian oil supply due to US sanctions and deteriorating output from Venezuela will see oil markets further tightening, Fatih Birol told the Oil and Money conference in London. With oil prices jumping more than $30/b this year to $85/b and other key energy prices rising sharply, Birol said prices suggest that “expensive energy is back at a time of fragile economic growth.”
“It seems like expensive energy is back and back at the wrong time for the global economy,” Birol said. “Global economic growth is losing momentum, there are major currency issues in emerging countries, and trade tensions among major players are with us.” Current oil prices are hurting consumers and growth prospects, he said, particularly in emerging economies. Birol said he expects Venezuelan oil production could fall below 1 million b/d “sometime soon,” from around 1.2 million b/d currently.
Despite the tightening oil market, Birol said the IEA has no current plans to order the release of strategic oil stocks to help supply the market and temper prices. “We are following the oil markets, monitoring … but the IEA releases the stocks when there is a physical supply disruption. We are not currently discussing this issue, it’s not on the table but the IEA remains ready to act if it’s necessary.”