Up­ward pres­sure on oil prices to con­tinue, IEA says

The Globe and Mail (Prairie Edition) - - REPORT ON BUSINESS - SHAWN MC­CARTHY GLOBAL EN­ERGY RE­PORTER OT­TAWA

Global mar­kets are well-sup­plied but not enough to off­set strong de­mand, ex­port de­clines from Iran and Venezuela

With U.S. sanc­tions on Iran due to kick in next month, oil mar­kets will con­tinue to face up­ward pres­sure on prices even as those higher en­ergy costs cause slower growth in the global econ­omy, the In­ter­na­tional En­ergy Agency said on Fri­day.

How­ever, Cana­dian crude pro­duc­ers con­tinue to miss out on the com­mod­ity price surge as both heavy and lighter grades of Western Cana­dian crude sell at record dis­counts com­pared with North Amer­ica’s bench­mark West Texas in­ter­me­di­ate (WTI). The dis­count for Western Cana­dian se­lect – which touched US$52 a bar­rel ear­lier in the week – was US$49.65 in trades for Novem­ber de­liv­ery on Fri­day, ac­cord­ing to Net En­ergy, a Cal­gary oil-trad­ing firm. Cana­dian light oil – which typ­i­cally sells at a slight dis­count to WTI – fetched US$28.50 less a bar­rel on Fri­day, Net En­ergy said.

WTI re­treated from a mid­week high of US$75 to close Fri­day at US$71.08, while the in­ter­na­tional bench­mark North Sea Brent set­tled at US$79.70.

Global mar­kets are cur­rently well-sup­plied with oil, as key coun­tries – in­clud­ing Saudi Ara­bia, Rus­sia, the United States and Canada – are each pro­duc­ing near-record vol­umes, the Paris­based IEA said on Fri­day in its monthly oil mar­ket re­port. How­ever, de­mand has also been strong, and ma­jor sup­pli­ers such as Iran and Venezuela have seen their ex­ports fall pre­cip­i­tously.

As a re­sult, there is limited abil­ity to pro­duce more crude quickly and that spare ca­pac­ity will be squeezed even fur­ther in the com­ing months, the agency fore­cast.

“This 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 im- pact on the global econ­omy,” the re­port said. The IEA pared back its de­mand fore­cast by 110,000 bar­rels a day (b/d) for both this year and 2019, ow­ing to a slow­ing econ­omy and higher crude prices.

IEA pres­i­dent Fatih Birol re­cently echoed calls from U.S. Pres­i­dent Don­ald Trump that ma­jor pro­duc­ers within the Or­ga­ni­za­tion of Petroleum Ex­port­ing Coun­tries (OPEC) must boost their out­put to keep a lid on prices.

Iran’s ex­ports fell by 800,000 b/d in Septem­ber from its re­cent peak of 1.6 mil­lion b/d as the Trump ad­min­is­tra­tion threat­ens to pun­ish re­finer­ies that ig­nore U.S. sanc­tions be­ing im­posed af­ter Wash­ing­ton with­drew from the nu­clear-weapons agree­ment en­tered into by for­mer U.S. pres­i­dent Barack Obama. When sanc­tions for­mally kick in next month, the im­pact will de­pend on the de­gree to which the U.S. ad­min­is­tra­tion grants waivers to key Ira­nian cus­tomers in In­dia and else­where that would sup­port ex­ports from the OPEC heavy­weight.

Cana­dian pro­duc­ers have been hit not only by bot­tle­necks at home, but also by a short­age of pipe­line ca­pac­ity in the United States, which has kept a lid on WTI. Cana­dian light-crude prices fell sharply this week, as in­ven­to­ries build in Al­berta and pro­duc­ers scram­ble to se­cure rail ca­pac­ity.

In ad­di­tion to the pipe­line con­straints, Cana­dian pro­duc­ers have been hit by a large num­ber of U.S. re­fin­ery cus­tomers go­ing down for main­te­nance at the same time, said Rory John­ston, econ­o­mist with Bank of Nova Sco­tia. There is more than one mil­lion b/d of re­fin­ing ca­pac­ity off­line for main­te­nance, com­pared with 600,000 b/d at this time last year, he said. The dif­fer­en­tials should im­prove some­what when those plants are back in op­er­a­tion.

The pain is spread­ing from pro­duc­ers to the ser­vice sec­tor, with drilling com­pa­nies ex­pect­ing lit­tle im­prove­ment in the com­ing year, said Mark Scholz, pres­i­dent of the Cana­dian As­so­ci­a­tion of Oil­well Drilling Con­trac­tors. “It’s def­i­nitely not good news at a time when we’re still strug­gling to keep our heads above wa­ter,” he said.

VAHID SALEMI/AP

A partly con­structed re­fin­ery at the South Pars gas field is seen in Asa­louyeh, Iran, in Jan­uary, 2014. Iran’s ex­ports fell by 800,000 bar­rels a day in Septem­ber from its re­cent peak of1.6 mil­lion amid the threat of sanc­tions by the United States.

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