In its February Oil Market Report, the International Energy Agency (IEA) forecasts a drop in global demand from last month’s forecast of 90.2 million barrels/day to 89.9 million barrels/day. The IEA’s estimate of daily demand growth dropped from 1.1 million barrels/day to 800,000 barrels/day. The IEA attributes the drop to “a rising likelihood of sharp economic slow‐down, if not outright recession, in 2012.” The agency also foresees supplies tightening as a result of the global political situation.
The two factors, one that should push prices down and the other which should push prices up, indicate that a period of oil price stability may be upon us. That would be good news, except that neither of the factors is, in itself, particularly good news.
Effects of the coming Iranian oil embargo are already being felt: “International sanctions targeting Iran’s existing oil exports do not come into effect until July 1, but they are already having an impact on crude trade flows in Europe, Asia and the Middle East.” China has already cut its imports of Iranian crude, not because it supports the sanctions, but as a negotiating tactic to get a lower price for the oil.
The IEA reckons that as much as 1 million barrels/day of Iran’s 2.6 million barrels/day of production could either be placed in floating storage or shut in as a result of the embargo. Substitute barrels are most likely to come from Russia, Iraq, West Africa, and Saudi Arabia.