IEA Ready for Oil Supply-Side Shocks

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--The geopolitical risk premium that had threatened to push crude oil prices higher had faded away at the start of the week after the International Energy Agency (IEA) (Paris, France) said it was committed to addressing any supply-side shocks.

Crude oil prices had increased during recent trading days amid fears that the conflict raging in the Palestinian territories and southern Lebanon would seep over to engulf Iran. Israel, supported largely by the United States, has taken a heavy hand against its adversaries in the region after Hamas militants attacked a music festival in Israel from the Gaza Strip in 2023, leaving 1,200 dead.

On October 6, one day before the anniversary of the Hamas attacks, the price for Brent crude oil jumped 4.6% to reach $81 per barrel. That came days after Iranian missiles rained down on Israel.

Apart from shipping lanes in and around the Red Sea, however, few actual energy targets have been singled out during recent conflict. But commenting on the potential for a disruption, Fatih Birol, the head of the International Energy Agency, said the group was prepared.

"(T)he IEA is ready to respond quickly and effectively to sudden disruptions in energy markets," he said in the agency's flagship Oil Market Report.

The IEA was formed in 1974 in the wake of the oil embargo from the Arab members of the Organization of the Petroleum Exporting Countries (OPEC) on Western economies. It last acted on oil markets in 2011, at the dawn of the Arab Spring movements in the Middle East and North Africa, when it called on its member states to release oil from strategic reserves to compensate for the loss of Libyan barrels due to civil war.

Now, the threat of war in Iran and prospects for wider conflict in the Strait of Hormuz, one of the busier oil transit routes in the world, could lead to a significant spike in the price of oil. Previous forecasts this month from the U.S. Energy Information Administration and OPEC, however, emphasized a slowdown in the global economy rather than geopolitical risk, leading to a downturn in the price of oil.

On the supply side, the IEA said it expected to see production from OPEC members and producers in Latin America to slump considerably in the coming decades, though at least half of that shortfall would be made up by output from North America.

Based on the status quo, the IEA expects crude oil prices to remain range-bound for the foreseeable future.

Following the IEA's pledge on supplies, and a report from The Washington Post that said Israel would avoid targeting Iran's oil, prices are on a considerable decline this week.

With about an hour to go before the start of trading on Wall Street, the price for Brent crude oil, the global benchmark, was down 3.8% to trade in the $75-per-barrel range on Tuesday. The contract lost 2% in the previous session.

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