Global energy prices are expected to remain at levels that threaten economic growth, according to the International Energy Agency's Oil Market Report, released Oct. 12.
The IEA noted that Brent crude oil traded on the Intercontinental Exchange reached four-year highs above $85 per barrel, while shale oil production growth coupled with pipeline bottlenecks in the U.S. led the Brent-WTI spread to widen to $9/bbl. However, at the same time, refined product prices failed to keep pace with gains in crude oil.
"Our position is that expensive energy is back, with oil, gas and coal trading at multi-year highs," the report said. "For many developing countries, higher international prices coincide with currencies depreciating against the U.S. dollar, so the threat of economic damage is more acute. The global economy is also at risk from trade disputes."
On this outlook, the IEA lowered its global oil demand growth forecast by 110,000 barrels per day in 2018 and 2019 to 1.3 million barrels per day and 1.4 MMbbl/d, respectively.
"Both global oil demand and supply are close to new, historically significant peaks at 100 [MMbbl/d], and neither show signs of ceasing to grow any time soon," the report said. "The drivers of demand remain very powerful, with petrochemicals being a major factor."
The IEA said elevated oil prices reflect high crude oil runs as well as the risk to global supply from sanctions against Iran.
In September, global oil production was approximately 100 MMbbl/d, or 2.6 MMbbl/d higher year over year, the IEA said. Led by the U.S., the agency expects non-OPEC output to increase by 2.2 MMbbl/d in 2018 and 1.8 MMbbl/d in 2019.
Meanwhile, OPEC production reached a one-year high of 32.78 MMbbl/d in September, the IEA said.
The agency noted since May, an increase in net production from major oil producers of approximately 1.4 MMbbl/d, led by Saudi Arabia, and a 500 Mbbl/d increase in oil stocks during the second quarter have left the market "adequately supplied for now."
"With Iran's exports likely to fall by significantly more than the [800,000 bbl/d] seen so far, and the ever-present threat of supply disruptions in Libya and a collapse in Venezuela, we cannot be complacent and the market is clearly signaling its concerns that more supply might be needed," the report said. "Recent production increases come at the expense of spare capacity, which is already down to only 2% of global demand, with further reductions likely to come. The strain could be with us for some time and it will likely be accompanied by higher prices, however much we regret them and their potential negative impact on the global economy."