Cape Town — Major oil producers like Saudi Arabia and Russia need to sustain strong production levels in order to offset supply risks, the International Energy Agency's executive director Fatih Birol said Tuesday, warning that the oil market is "not out of the woods yet."
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Birol sounded a cautionary note about the near-term risks in an interview with S&P Global Platts at Africa Oil Week in Cape Town, noting that Venezuelan production is in "free-fall" and could drop below 1 million b/d soon.
He also mentioned that with Iranian exports in decline because of US sanctions and concerns over Angola, Nigeria and Libya, potential supply shocks remain a real threat, especially with "demand still strong."
"After our call to key producers asking for common sense we see very good responses led by Saudi Arabia, UAE, Kuwait, Iraq and Russia," Birol said.
"In addition to that you see the significant growth out of the US taking prices down to $73/barrel which I believe is much more reasonable."
He was keen to point out that despite these risks, the oil market is in a much better place than a month ago when prices spiked above $80/b.
Saudi Arabia has increased crude production to around 10.7 million b/d recently, close to all-time record highs, while other key OPEC members have raised output and Russia is also producing near all-time highs at almost 11.5 million b/d.
Birol also said that despite the exemptions given by the US to eight importers of Iranian oil being temporary, they could "provide a comforting factor to the market."
The US imposed sanctions on Iranian oil exports this week but temporary waivers were granted until May to China, India, Japan, South Korea, Italy, Taiwan, Greece and Turkey.
However he added: "It's too early to feel relaxed... I still want to be cautious."
Indeed, while OPEC has indicated that it may have to change course again when it meets in December, Birol thought this would be premature.
"To be very frank, I would like to give credit here to Saudi Arabia. When oil was $86/b, they moved responsibly and I would expect come December, January, February, I would hope they continue to do so."
OPEC and 10 non-OPEC partners led by Russia agreed in late June to reduce overcompliance under their production cut agreement, raising output by a collective 1 million b/d to offset the impact of US sanctions on Iran as well as Venezuela's ongoing economic crisis.
Iran has lost 900,000 b/d in exports since May according to the IEA, while Venezuela has seen output fall by more than 1 million b/d in the past couple of years.
Further out, Birol didn't appear too relaxed either. He cautioned that the fallout from a lack of investment over the past few years would come back to bite the industry in the coming years, despite the surge in US production.
"Shale oil alone may not be enough alone to close the [supply] gap," Birol said.
US crude production climbed to a record-high 11.4 million b/d in August, according to the US Energy Information Administration. But US crude exports cannot increase rapidly enough to replace Iranian barrels, until the Permian pipeline bottlenecks ease in mid-2019.