The oil production cut extension by Saudi Arabia and Russia to the end of the year will lead to a considerable market shortfall through the fourth quarter, the International Energy Agency (IEA) said in its monthly report.
Both WTI Crude Oil and Brent Oil Futures registered highs unseen since November 2022 this week, after Saudi Arabia and Russia extended their combined 1.3 million barrels per day supply cuts until the end of the year.
Higher supply from non-OPEC producers, including the United States, Brazil and Iran, has so far offset OPEC+ production cuts of over 2.5 million barrels per day since the beginning of 2023.
But the IEA warned that “from September onwards, the loss of OPEC+ production, will drive a significant supply shortfall through the fourth quarter.”
The agency noted that broader macroeconomic concerns, including a stuttering post-COVID recovery in China, have been magnified by other concerns that US interest rates will likely remain elevated.
The agency, however, pointed out that oil demand from China had so far remained “remarkably unaffected by its economic downturn.”
“China is the main wild card,” the IEA said in its report.
“Any abrupt weakening of China’s industrial activity and oil demand is likely to spill over globally, making for a more challenging climate for emerging markets in Asia, Africa and Latin America.”