The IEA said on Friday that world oil stocks can absorb the loss of supply from Iran for a year and this should have a calming effect on the oil market.
Iran is OPEC’s second largest producer and concerns that the row with the US and its allies over Tehran’s nuclear programme may lead to a disruption in its crude supplies, have moved oil markets.
“Iran produces 3.5 million-4.0 million barrels per day of oil,” David Fyfe, head of the oil industry and markets division at the IEA, told an oil forum in Tokyo. “Stocks could absorb a 3 million to 4 million-bpd supply gap for more than a year. There are mechanisms there for supply disruption, this could be a calming factor for markets.”
Oil inventories have swollen since the beginning of the economic downturn as demand fell below supply. OPEC cuts have also given the world a bigger spare capacity cushion than it has had for years to deal with any surprise outages in global supply. With such large spare capacity, oil prices moved little last year, as political turmoil engulfed Iran after a disputed presidential election.
But there was always the danger that politics in Iran would impact supply, said Leo Drollas, chief economist at the London-based Centre for Global Energy Studies. “The country is in turmoil,” Drollas told the same oil forum. “There will be a big change there eventually, we don’t know when. But the oil market will be affected.”
Just this week, Tehran’s leaders gave their terms for giving up most of their enriched uranium under a deal brokered by the IAEA and world leaders dismissed the offer as being far short of what other nations have demanded.