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Brace for volatility as oil supply risks loom large

OPEC and its producer allies agreed to an oil output increase of around 1 million b/d.

Mriganka Jaipuriyar (The Jakarta Post)
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Singapore
Tue, July 10, 2018

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Brace for volatility as oil supply risks loom large OPECĀ and its producer allies agreedĀ to an oil output increase of around 1 million b/d. (Shutterstock/File)

O

il markets need to brace for high levels of volatility in the coming months amid looming supply risks and uncertainty around available spare production capacity. 

The Organization of the Petroleum Exporting Countries (OPEC) and its producer allies set aside political differences and agreed on June 22 to an oil output increase of around 1 million b/d, but question marks remain around how much real volume will hit the market given that several countries are pumping at full capacity and some cannot raise production even if they want to. 

The supply side risks, meanwhile, have intensified. Political turmoil in Libya has severely disrupted production there, the United States has announced that it intends to fully eliminate Iranian oil exports from the market starting November and Venezuelan production is in freefall — the International Energy Agency expects its output to drop from the current level of 1.36 million b/d to 800,000 b/d by the end of 2019.

The front-month ICE Brent futures contract, which settled at US$75.32/b after the OPEC announcement — off the $80/b level it had touched a month earlier — has since risen and is again flirting with that level. 

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