IEA: Saudi Arabia and UAE could mitigate oil market volatility

Saudi Arabia and the United Arab Emirates (UAE) could help calm oil markets by pumping more crude, the International Energy Agency (IEA) said on Friday, according to Reuters.

It should be noted that the United Arab Emirates and Saudi Arabia are the two oil producers with the largest surplus capacity.

“Oil prices are rallying once again as the IEA raises demand forecasts this year and confirms that OPEC + lost its production targets again in January with even greater margin,” said Craig Erlam, senior market analyst at OANDA.

The IEA said that if OPEC + fully resolved their current production cuts, they could add 4.3 million barrels a day to the market.

At present, while OPEC + increases production every month, it is not meeting its monthly target of an additional 400,000 barrels per day. The IEA said in January that the gap between production and the target had widened to 900,000 barrels per day.

“The prolonged underperformance of the block has effectively removed 300 million barrels, or 800,000 a day from the market since the beginning of 2021,” the IEA noted.

A successful outcome of international talks with Iran could lift US sanctions on the country’s exports and alleviate supply constraints, the IEA added, gradually bringing 1.3 million barrels of Iranian oil a day to market.

Supply and demand appear to be balanced in the first quarter, but are expected to turn into surplus in the second quarter or second half of the year, the IEA added.

The need to replenish depleted oil reserves, which in OECD countries fell by 60 million barrels in December to seven-year lows, means that an immediate oversupply is unlikely.