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IEA's Birol warns global oil prices may enter the 'red zone' in Q4 2018

London — 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.

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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."

IRAN SANCTIONS

On US sanctions on Iran, Birol said the IEA believes 800,000 b/d of oil supply has been lost from the market compared to the second quarter, adding that "how much it will fall is something that we don't know. But we are preparing ourselves in a context that the exports will continue to fall."

Asked whether the US should be more open to offering sanctions waivers for key consumers of Iran's oil, he said the IEA is consulting with key oil buyers such as India to try to help ease any acute regional shortages.

"When I look at the markets, there is a need to increase the common sense to help comfort the markets," he said, noting that the oil market balance should ease by the middle of next year.

In September, the IEA warned the oil market is entering a "crucial period" and increased its estimates of the "call" on OPEC, or need for OPEC crude, for the fourth quarter of this year and Q1 next year to 32.8 million b/d and 31.3 million b/d respectively, while keeping its annual estimates unchanged.

-- Robert Perkins, robert.perkins@spglobal.com

-- Edited by Alisdair Bowles, newsdesk@spglobal.com