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. Last Updated: 07/27/2016

OPEC Squeeze Bites Into West's Oil Inventory




LONDON -- World oil inventories now are being drawn down so rapidly that consumers in the West might even be hit by retail supply outages this winter, the International Energy Agency warned Wednesday.


Stockpiles already depleted by OPEC supply curbs are being drawn down more quickly than expected by Iraq's decision to suspend exports because of a wrangle at the United Nations over a new resolution on sanctions.


"Without Iraqi output in December we run the danger of seeing some spot outages to consumers in the supply of heating oil or gasoline this winter," said David Knapp, the head of the oil markets division at the West's Paris-based oil watchdog.


Iraq previously was supplying 2.3 million barrels per day to the 75 million bpd world market and says it will only resume sales under the original conditions of the UN's oil-for-food exchange. The UN is likely to vote on a new sanctions resolution later this week.


Robert Priddle, the IEA's executive director, said in Washington on Tuesday that the agency was projecting a 5 million bpd shortfall in global oil supplies during December.


Priddle told reporters that if the millennium computer bug were to disrupt deliveries at the end of the year the agency was prepared to order the Organization for Economic Cooperation and Development governments that it represents to tap their strategic reserves.


In its monthly Oil Market Report on Wednesday, the IEA said commercial inventories among industrialized nations fell 440,000 bpd in October after an unusually large 1.56 million bpd draw in September.


"This is a thirsty oil market waiting for more oil, which will have to come from OPEC," the IEA said.


OPEC has maintained unusually tight compliance with the export limits it put in place in March and according to latest IEA data reduced supply further in November.


Cartel output fell 700,000 bpd to 25.8 million bpd during the month, partly because of Iraq's absence, and compliance with supply curbs rose to 89 percent of targeted levels.


OPEC ministers in public insist they have no plans to change output policy before next April, when their yearlong agreement expires.


However, OPEC insiders say big producers like Saudi Arabia are worried about stoking inflationary pressures in the West and don't want to see the market get out of hand.


The IEA said this year's recovery in oil prices has yet to make any major impact on commercial upstream activity, leaving OPEC as the only source of extra supply to meet rising demand.


"Oil supply from outside OPEC is increasing much less rapidly than demand," the IEA said. "Little of the production that was shut in or lost due to lack of workovers and other upstream investment during last year's price collapse has reappeared."


It said OECD industry stocks by end October stood 15 million barrels below end-October 1997 and within 100 million barrels of their lows in October 1996.


"Continued rapid declines in November may indeed have brought OECD industry stocks almost to the 1996 level," it added.


Oil prices, at $25 a barrel for benchmark Brent blend Wednesday, were last as high in 1996 when oil companies chose to save money by slicing inventories.


Analysts have warned that $30 a barrel for Brent, a threefold rise from February's lows, could be on the cards.


The IEA said North America, the world's largest oil consuming region, bore the brunt of the October stockdraw.


Inventories in the United States dipped 755,000 bpd in October and 1.25 million bpd through most of November.


"The U.S. stockdraw in December could approach 2 million bpd," it added.