IEA's Birol's warns of 'upward pressure' on oil prices if OPEC sticks to output plan

Global oil prices will face further upward pressure unless OPEC and its oil producer allies agree to return more crude to the markets in the coming months to meet a strong demand rebound, according to the head of the International Energy Agency Fatih Birol.

OPEC+ ministers are meeting June 1 to weigh their current policy of raising production by a combined 2.1 million b/d over the May-July period. The move comes as oil prices trade near a three-month high of $71/b, fueled by signs of a surge in global oil demand this summer as most countries lift pandemic lockdowns.

"Over the next six months, I see very clearly that there is a strong recovery of oil demand in the US, China, Europe and elsewhere and if OPEC+ stick to their current policies we may see a wider gap between supply and demand," Birol told Bloomberg in an June 1 interview.

"In the absence of not changing the policies with the strong growth coming...we'll see a widening gap which in turn would put further upward pressure on the prices," he said.

In its latest oil market report last month, the IEA said it sees a major oil demand rebound of some 6.5 million b/d between the first quarter and the end of 2021, and forecast that likely supply growth by the OPEC+ group and others would be "nowhere close" to the expected demand increase.

It cautioned that current production plans by OPEC+ "won't rise fast enough to keep pace with the expected demand recovery," even if a nuclear deal with Iran sees more volumes coming from the OPEC member later this year.

OPEC+ countries, which held almost 7 million b/d of production offline in April, are in the process of boosting output by some 2.1 million b/d from May-July — roughly 2% of pre-pandemic demand — of which 1.4 million b/d will come from Saudi Arabia.

OPEC+ delegates told S&P Global Platts last week that the 23-country alliance would likely stick with its plans to relax output quotas until more clarity emerges over the fate of the Iran nuclear deal and the impact of coronavirus containment measures in India, Japan, Taiwan, and other hotspots.

Platts Analytics forecasts robust global oil demand growth of 5.1 million b/d in June and July, with supply still bullishly remaining 1.5 million b/d in deficit.