While OPEC is considering cutting oil production again, the executive director of the International Energy Agency (IEA), Fatih Birol, called on Monday for ‘common sense’ because fresh cuts could have negative effects on the oil market.
“Currently markets are very well supplied but we should not forget that spare capacity in Saudi Arabia is very thin, therefore cutting the production significantly today by key oil producers may have some negative implications for the markets and further tightening the markets,” Reuters quoted Birol as saying at a news conference in Bratislava.
“My appeal to all producers and consumers across the world is to have common sense in these difficult days,” the IEA’s executive director said.
In its Oil Market Report for November published last week, the IEA said that surging production from the world’s biggest oil producers have more than offset Iranian and Venezuelan supply losses, while demand growth in some developing markets is slowing, pointing to a global oil oversupply next year.
Despite the implied surplus in oil supply next year, the IEA doesn’t see the oversupply as a threat to the markets.
“Although the oil market appears to be more relaxed than it was a few weeks ago, and there might be a sense of ‘mission accomplished’ that producers have met the challenge of replacing lost barrels, such is the volatility of events that rising stocks should be welcomed as a form of insurance, rather than a threat,” the IEA said in its report.
After the latest plunge in oil prices in recent weeks and after supply-demand analysis started to suggest that an oversupply may be building, OPEC and its de facto leader Saudi Arabia have started to hint at new production cuts, with speculation ranging from cuts of 1 million bpd to as much as 1.4 million bpd.
OPEC and allies meet in early December in Vienna, where they are set to discuss the state of the oil market and potential new oil production policies.