Extended Oil Production Cuts To Create Shortage In Second Half Of 2023, Says IEA Report

Global oil markets are on the verge of a 1.2 million barrels per day shortage in the second half of 2023, according to the International Energy Agency.

The shortage follows OPEC+ leaders' recent decision to extend their production cuts through December 2023, it said in a report issued on Wednesday.

The IEA warned that Saudi Arabia and Russia's oil supply reduction would result in a "significant deficit in supply" and could lead to renewed fluctuations in oil prices. This concern materialised as Brent futures reached a 10-month high above $92 per barrel on Tuesday.

The continuation of production cuts by Saudi Arabia and Russia would maintain a substantial shortage in the market throughout the fourth quarter of 2023, the agency said.

Even if the two large oil producers relaxed limitations in early 2024, oil inventories would still be severely depleted, it said.

Production cuts enacted by OPEC+ members, totaling more than 2.5 million barrels per day since the beginning of 2023, have been balanced out by increased supplies from producers not in the alliance, the report said.

Non-OPEC+ production surged by 1.9 million barrels per day, reaching a record of 50.5 million barrels per day by August. This record-breaking supply was driven by the United States and Brazil, which contributed to a 1.9 million barrels per day increase from January to August. Iran, despite being under sanctions, managed to boost its output by approximately 6,00,000 barrels per day.

Global supply in 2023 will increase by 1.5 million barrels per day, with the U.S., Iran, and Brazil being key contributors to this growth, the IEA said. However, the reduction in OPEC+ production will result in a significant supply deficit during the fourth quarter of the year, the report said.