OPEC’s rejuvenated bid to tame crude prices could soon exhaust the world’s spare capacity cushion, according to the latest monthly report from the International Energy Agency (IEA).
The IEA’s closely-watched report comes shortly after crude had its biggest one-day drop in two years, amid heightened U.S.-China trade tensions and persistent global crude supply problems.
“The large number of (supply) disruptions reminds us of the pressure on global oil supply. This will become an even bigger issue as rising production from Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world’s spare capacity cushion, which might be stretched to the limit,” the Paris-based organization said Thursday.
“This vulnerability currently underpins oil prices and seems likely to continue doing so,” the IEA added.
When spare capacity is high, it acts as a shock absorber to the energy market. But that cushion has shrunk considerably in recent months because of a flurry of outages in Venezuela, Libya and Canada.
And with OPEC and Russia now ramping up output, even minor disruptions in key oil-producing countries could cause prices to spike.