The International Energy Agency (IEA) released its most recent report on oil inventory around the world. It found that levels are at a three-year low. This will compound the reason oil prices may continue to climb. Brent crude trades for just below $80 a barrel.
The IEA reported:
For some time, the focus has been on OECD stocks, and new data show a further decline in March of 27 mb to the lowest level in three years and to 1 mb (million barrels) below the widely cited five-year average figure. For now, the rapidly changing geopolitical landscape will move the attention away from stocks as producers and consumers consider how to limit volatility in the oil market.
The agency mentioned that the U.S. withdrawal from the Joint Comprehensive Plan of Action could affect Iran’s export level of about 2.4 million barrels a day, which creates more upward pressure on prices.
The data also lead to more anxiety about the production of crude by Venezuela, which has the largest proven crude deposits in the world. Tremendous economic and political inventory have shaved its exports. The IEA mentioned:
In Venezuela, the pace of decline of oil production is accelerating and by the end of this year output could have fallen by several hundred thousand barrels a day. Our April data show that Venezuela’s production is 550 kb/d lower than its target under the Vienna Agreement and this “excess” is more than Saudi Arabia’s total commitment. The potential double supply shortfall represented by Iran and Venezuela could present a major challenge for producers to fend off sharp price rises and fill the gap, not just in terms of the number of barrels but also in terms of oil quality.
Among the offsets to these forces is the rise of shale production from huge fields in Canada and the United States. The rising price of crude makes shale production more profitable, which, in theory, should bring more production online. The IEA mentioned that this was likely to continue.
Overall, the IEA indicates, the upward forces on oil prices most likely will outweigh downward pressure.