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IEA ‘significantly’ concerned on Strait of Hormuz, sees well-supplied oil markets: Birol

The International Energy Agency is “significantly” concerned about geopolitical tensions, including in the Strait of Hormuz, but oil markets are currently well supplied and unlikely to see “huge price increases for now,” the head of the agency said.

“At present, we have lots of oil in the market. So, in a normal world, we don’t expect huge price increases,” IEA executive director Fatih Birol told reporters on the sidelines of an industry conference in New Delhi.

“A substantial amount of oil is coming from the US, about 1.8 million b/d, plus oil from Iraq, Brazil and Libya,” he said.

“Having said that, there are seriously political tensions around the world, including the one in the most important Strait of Hormuz, and that is something that concerns the IEA significantly,” he said. “It will be only a big surprise if you see the price jump, but political tensions may impact those dynamics.”

Crude oil futures remained more than 1% higher in mid-afternoon trade Asia Friday following reports that an Iranian drone had been shot down by a US navy ship, further escalating tensions between the two countries.

At 2:12 pm Singapore time (0612 GMT), front-month ICE Brent September futures were up 95 cents/b (1.53%) from Thursday’s settle at $62.88/b, while the front-month NYMEX August light sweet crude futures contract was 58 cents/b (1.05%) higher at $55.88/b.

A US Navy ship shot down an Iranian drone Thursday in the Strait of Hormuz, US President Donald Trump said. The drone came within 1,000 yards of the ship, the USS Boxer, and ignored “multiple calls to stand down,” Trump said at the White House Thursday.

“The drone was immediately destroyed,” he added.

Trump called the incident “the latest of many provocative and hostile actions by Iran against vessels operating in international waters.”

Birol said on June 14 – the day after two oil tanker attacks just outside of the Strait of Hormuz – that the IEA was closely monitoring the attacks and their implications closely and was ready to act if and when necessary.

“Having lots of supply does not mean that oil security is not important, and this very important incident reminds all of us, all actors in the markets once again, how important an issue oil security is,” Birol said in an interview with S&P Global Platts on June 14.

The Strait of Hormuz was the most important oil choke point, especially for Asian energy importers, he said at the time.

“Today, about 18 million barrels of oil on a daily basis flows through this choke point coming from Saudi Arabia, Emirates and other countries to China, Japan, India and other Asian customers,” he added.

Birol said Friday of the global oil demand outlook: “If we see the market today, we see that the demand is slowing down considerably because of the slower economic growth this year compared to the previous year.”

“Mainly China is experiencing one of the lowest growths in the last three decades and similar trends are emerging in other parts,” he added.

But the IEA offered some comfort in its latest oil market report on July 12, projecting a 1.8 million b/d year-on-year rise in demand in the second half of 2019 following exceptionally weak growth in the first half — noticeably in India and Saudi Arabia.

“We expect Indian oil demand will continue to increase and it is, therefore, very important for India to increase domestic production as oil and gas import for India is a major challenge,” Birol said.
Source: Platts

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