Monday, September 24, 2018

U.S. Likely World’s Largest Crude Oil Producer, DOE Authorises Short-Term Natural Gas Exports

http://legacy.lib.utexas.edu/maps/united_states/us_gas_production_in_conventional_fields-2009.jpg

The Energy Information Administration (EIA) estimated in its latest Short-Term Energy Outlook that the U.S. is now the largest global crude oil producer, likely surpassing Russia and Saudi Arabia.

In February, U.S. crude oil production exceeded that of Saudi Arabia for the first time in more than two decades. In June and August, the United States surpassed Russia in crude oil production for the first time since February 1999.

EIA estimates that U.S. crude oil production averaged 10.9 million barrels per day (bpd) in August, up by 120,000 bpd from June. EIA forecasts that U.S. crude oil production will average 10.7 million bpd in 2018, up from 9.4 million bpd in 2017, and will average 11.5 million bpd in 2019.

Meanwhile, EIA estimates that U.S. crude oil production averaged 10.9 million bpd in August, up by 120,000 bpd from June. EIA forecasts that U.S. crude oil production will average 10.7 million bpd in 2018, up from 9.4 million bpd in 2017, and will average 11.5 million bpd in 2019.

The U.S. Department of Energy (DOE) also announced that on September 6, 2018, a short-term order was issued to the Freeport LNG project to export up to 2.14 billion cubic feet per day (Bcf/d) of LNG over a two-year period to both free-trade and non-free trade agreement countries. This order authorises Freeport’s initial commissioning volumes and other exports pursuant to short-term contracts. Freeport LNG will be exporting the LNG from the Freeport LNG Liquefaction Project, which is currently under construction on Quintana Island, Texas.

During this two year authorisation period, Freeport LNG will be authorised to export LNG to any country not prohibited by U.S. law or policy. The two year export term will become effective on the date of the commencement of the facility’s first export of LNG, currently projected to be in the third quarter of 2019.

Since exports of U.S. LNG began in 2016, over 1.3 trillion cubic feet of U.S. natural gas has been exported. EIA estimates dry natural gas production in the U.S was 82.2 Bcf/d in August, up 0.7 Bcf/d from July. Dry natural gas production is forecast to average 81.0 Bcf/d in 2018, up by 7.4 Bcf/d from 2017 and establishing a new record high. EIA expects natural gas production will continue to rise in 2019 to an average of 84.7 Bcf/d.

Friday, September 21, 2018

VLCC upturn - wait a little while longer

gms_market_commentary_on_shipbreaking_in_week-_19-_vlcc-focus_75807.jpg


The Crude and residual fuel oil transportation market will remain over-supplied in 2019, according to the latest outlook from McQuilling Services taken from the consultancies Mid-Year Update publication.
 
There will be commensurate weakness in VLCC and other DPP segments, freight and earnings before re-balancing thereafter.
 
Vessel supply pressure increased last year at a time when demand fell, due to rising crude pricing, lower OPEC production and de-stocking of inventories.
 
The inevitable decline in utilisation was the direct influence towards weakening earnings, which remains the story today.
 
As for 2019, McQuilling said that the projection requires an examination of forward looking fundamentals and the impact on VLCC utilisation.
 
There is an expected rise in VLCC supply over the next 15 months, as from an original projection of 50 VLCC deliveries, 24 have been confirmed through the end of August, indicating 26 are delivering in the near term. In addition, McQuilling’s adjusted orderbook shows 61 VLCC deliveries scheduled for 2019.
 
Balancing the equation is an increase in deletions, which year-to-date numbered 30, with full-year estimates adding an additional 10%. Its forecast for 2019 deletions remained unchanged at 29 VLCCs.
 
This shows that tonne/day supply is projected to exceed 240 mill by the end of next year, a 7.5% increase over current levels. Therefore, in order for utilisation to remain at current levels (60.3%), demand would need to match this rise.
 
McQuilling’s models suggested that tonne/day demand will trend closer to 2018 levels, pointing to a weaker market in 2019 in the context of vessel supply pressures. It was acknowledged that upside demand shocks and higher than expected deletions may be mitigating factors for an improvement in utilisation.
 
In conclusion, while the fundamentals and technicals point to a weak market in 2019, McQuilling’s long-term forecasts reveal a more-balanced market in 2020 and a significantly tighter market in 2021/22.

Thursday, September 20, 2018

Trump blasts OPEC on oil prices, says ‘must get prices down now!’


https://www.marketwatch.com/story/trump-blasts-opec-on-oil-prices-says-monopoly-must-get-prices-down-now-2018-09-20

President Donald Trump took another swipe at global oil producers Thursday as the price of benchmark crude inched toward the $80-a-barrel threshold, tweeting at the Organization of the Petroleum Exporting Countries:
The remarks come ahead of a closely watched meeting in Algiers of a committee made up of representatives of OPEC countries and its outside allies. The producers had agreed in June to boost production in an effort to get output nearer a previously agreed ceiling. The June agreement was seen, in part, as a response to U.S. pressure.

Oil prices have been on the rise, boosted in part by Trump’s decision to pull out of the Tehran nuclear accord and renew sanctions on Iran aimed at sharply curtailing the major producer’s exports.

Trump’s latest tweet also come after a news report earlier this week said officials from Saudi Arabia, OPEC’s de facto leader and the crucial swing producer, were growing comfortable with the possibility of crude prices above $80 a barrel.

November futures on Brent crude LCOX8, -0.89% , the global benchmark, turned lower and were 41 cents, or 0.5%, at $79.03 a barrel in recent action. Futures on West Texas Intermediate for November delivery CLX8, -0.51% on the New York Mercantile Exchange were also dragged lower and traded off 9 cents, or 0.1%, at $70.69 a barrel. Brent is up 2% so far in September and more than 18% since the end of 2017, while WTI is up nearly 17% for the year to date.

The decision by OPEC and its allies, particularly Russia, to boost output in June was seen as an effort to help blunt the impact of the expected drop in Iranian output.

It’s no surprise to see politicians sensitive to rising oil prices, which translate to higher gasoline prices at the pump, particularly ahead of midterm congressional elections in November. Trump, who has embraced and reaffirmed Saudi Arabia as a key U.S. ally, has taken aim at the cartel previously, in a pattern observers said appears to show a sensitivity to pushes toward the $80 threshold for Brent.

Wednesday, September 19, 2018

Trump Hit Iran With Oil Sanctions. So Far, They’re Working.

An Iranian-flagged support boat near an oil tanker. A big drop in Iran’s oil exports two months before United States sanctions go into effect has had little impact on the global oil market.CreditCreditAli Mohammadi/Bloomberg


https://www.nytimes.com/2018/09/19/business/energy-environment/iran-oil-sanctions.html

HOUSTON — When President Trump announced in May that he was going to withdraw the United States from the nuclear agreement that the Obama administration and five other countries negotiated with Iran in 2015 and reimpose sanctions on the country, the decision was fraught with potential disaster.

If Mr. Trump’s approach worked too well, oil prices would spike and hurt the American economy. If it failed, international companies would continue trading with Iran, leaving the Islamic Republic unscathed, defiant and free to restart its nuclear program.

But the policy has been effective without either of those nasty consequences, at least so far.
Nearly two months before American oil sanctions go into effect, Iran’s crude exports are plummeting. International oil companies, including those from countries that are still committed to the nuclear agreement, are bailing out of deals with Tehran.

And remarkably, the price of oil in the United States has risen only modestly while gasoline prices have essentially remained flat. The current global oil price hovers around $80 a barrel, $60 below the highs of a decade ago.

“The president is doing the opposite of what the experts said, and it seems to be working out,” said Michael Lynch, president of Strategic Energy and Economic Research, a research and consulting firm.

Initial signs of a foreign-policy success could benefit Mr. Trump politically as Republicans try to hold on to control of Congress. The president and lawmakers allied with him could point to the administration’s aggressive stand toward Iran as evidence that his unconventional approach to diplomacy has been much more fruitful and far less costly than Democrats have been willing to acknowledge.

The administration’s tactical advantage could be fleeting, of course, if Iran retaliates with cyberattacks or militarily, incites more militia violence in Iraq, or revives its nuclear program.

The most important reason that predictions of higher oil prices have been wrong is that there is plenty of oil sloshing around the world. The United States has become a huge exporter of oil in the last several years and is now shipping roughly the same amount — more than two million barrels a day — that Iran did earlier this year.

Trade tensions and economic problems in developing countries like Turkey and Argentina might also be slowing the growth of energy demand.

Another thing in Mr. Trump’s favor is that while governments in Europe and Asia have publicly opposed his decision to withdraw from the nuclear agreement, many businesses in those places have made a different calculation. They have concluded that it makes little financial sense to risk investments in and trade with the United States by doing business with Iran.

Until Mr. Trump’s May announcement, Western allies considered the nuclear deal with Iran a success. In exchange for agreeing to strict limits on its nuclear program and international monitoring, Iran was allowed to re-enter the global oil market. The deal lifted restrictions on foreign companies doing business in Iran and gave the country access to frozen assets overseas.

After Nov. 4, companies that buy, ship or insure shipments of Iranian oil can be excluded from the American market and banking system unless they obtain waivers from the administration.

Trump administration officials say its sanctions are designed to punish Iran for its interventions in Syria, Yemen and other countries.

For Iran, the timing could not be worse. The country has lost influence over oil prices as other producers have eclipsed its energy industry, which has not kept up with technological advances.

At the beginning of the century, Iranian officials could shake the oil markets by staging military maneuvers or merely hinting that they would reduce supplies. Back then, American oil production was falling and global demand for crude was surging.

But those days are long gone. Like the United States, countries including Canada and Brazil are also exporting more oil. Russia, Saudi Arabia and Iraq have also increased production, helping to keep oil prices in check. Saudi Arabia and its Persian Gulf allies are only too happy to support the sanctions against their chief rival, Iran, by expanding exports.

That has provided a buffer for the global oil market as Iranian exports dropped by more than 25 percent, or around 600,000 barrels a day, between June and the start of September. Exports are expected to drop by an additional half-million barrels when American sanctions go into effect. All told, exports could drop from a high of 2.7 million barrels this year to fewer than a million in 2019 — lowering the country’s exports to less than 1 percent of the global market, from about 3 percent earlier this year.

That would further squeeze the Iranian government, which had $50 billion in oil revenue last year; oil and petroleum products make up about 70 percent of the country’s exports by value.

“For Iran, it shows the leverage that they have had through oil has not only diminished but may never return,” said Amy Myers Jaffe, a senior fellow specializing in energy at the Council on Foreign Relations. “People just don’t care if they are going to lose business in Iran. People don’t feel desperate for supply.’’

The sanctions are so onerous that even companies from countries opposed to Mr. Trump’s approach are withdrawing from Iran.

South Korea, Iran’s third-biggest oil market last year, halted purchases in August after buying 194,000 barrels a day in July. Shipments to France and Japan, two other major markets, are also dropping.

OMV, the Austrian oil company, recently backed out of an agreement with the National Iranian Oil Company to evaluate oil fields. Hellenic Petroleum of Greece, Spain’s Repsol and Italy’s Eni are winding down oil purchases.

The Foundation for Defense of Democracies, a conservative Washington think tank, found that 71 foreign companies planned to withdraw from Iran, 19 intended to stay and 142 were undecided or hadn’t said as of early September.

“Big international companies have to ask themselves what risks are they willing to take on,” said David Adesnik, the foundation’s director of research. “Even if you don’t have a business in the U.S. you can be cut off from our financial system, and that’s not something a truly global firm can afford.”
The next big shoe to drop appears to be India, Iran’s second-biggest oil market after China. Reliance Industries, the nation’s leading refiner, has said it will stop buying Iranian crude when American sanctions kick in. And the State Bank of India, the country’s largest lender, has told refiners that it will block payments for Iranian crude.

American officials are waging a public and private campaign to persuade foreign leaders to cut economic ties with Iran — and to buy more American oil.

During a visit to India this month, Secretary of State Mike Pompeo said the administration was seeking a total halt to Iranian oil exports, although countries will be given time to switch suppliers.

“Purchases of Iranian crude will go to zero from every country or sanctions will be imposed,” Mr. Pompeo said.

The sanctions could allow Russian and Chinese companies to replace Western businesses in Iran. After Washington denied it a waiver, the French oil giant Total pulled out of a contract to develop the South Pars gas field, leaving a potential opening to China’s CNPC to increase its investment in the field.

China, which imports a half-million barrels of Iranian crude a day, can more easily resist American policy than other countries. That’s because its smallest refiners and domestic banks have little or no exposure to the United States.

Russia is another obstacle.

Gazprom and Rosneft, two state-controlled Russian oil and gas giants, are negotiating oil development deals worth roughly $10 billion with the Iranian oil ministry.

For its part, Iran is not sitting still. The state-run Iranian tanker company is storing oil on its fleet of supertankers rather than shut down production, which can damage wells. Iran could smuggle oil over land through Pakistan and Afghanistan, and barter with trading companies to get around sanctions.

International transactions are largely denominated in dollars, which strengthens American sanctions. Over time, Iran’s oil trade could shift to other currencies, particularly the Chinese renminbi.

“We will continue by all means to both produce and export,” President Hassan Rouhani of Iran said recently on state TV. “Oil is in the front line of confrontation and resistance.”

Monday, September 17, 2018

Meet the Shalennials: CEOs under 40 making millions in Texas oil

Image result for John Sellers and Cody Campbell
John Sellers and Cody Campbell


Dozens of young entrepreneurs, mostly in their 30s, are running private-equity-backed companies in the frenzied boom in West Texas and New Mexico.

John Sellers and Cody Campbell are holding court one hot August evening in the corner of an oil-themed dive bar in Midland, Texas. After flying in on their private jet, they’re shaking hands, cracking jokes and talking deals with aspiring oilmen, contractors and land traders, almost all in their early 30s. A life-size, stuffed grizzly bear stands by a wall wearing a baseball cap embossed with: “Make Oil & Gas Great Again.”

It’s not hard to see why Sellers and Campbell are in such high demand in this hardscrabble city that has become the global centre of the shale revolution. Over the past decade, they’ve bought and sold tens of thousands of oil leases in the Permian Basin, making deals blessed with a handshake in diners, on the hoods of trucks and in bars such as this.

The co-CEOs of Double Eagle Energy III may be the most prolific, and richest, Texas dealmakers you’ve never heard of. At just 36 years old, they’ve personally made at least $500 million combined, according to an analysis by the Bloomberg Billionaires Index, based on typical deals in the sector. They declined comment on their wealth.

The oil industry has produced many billion-dollar fortunes, from H.L. Hunt, who rose to fame in the 1930s, to Harold Hamm, who led the innovations in shale that began in the 2000s. But while most were made from striking oil, the new game in town is land. Sellers and Campbell began as land men, specialists in buying and quickly selling drilling rights, which, in Texas, are all privately owned.

“You can have the best drilling engineer, the best geologist, the best of everything, but if you don’t own an oil and gas lease you can’t drill a well,” Campbell said, wearing a polo shirt, jeans and cowboy boots and sipping whiskey on the rocks. “The land man was always looked down upon because he wasn’t a scientist. Not anymore.”

They’re not alone. Dozens of young entrepreneurs, mostly in their 30s, are running private-equity-backed companies in the frenzied boom in West Texas and New Mexico that may each be worth billions of dollars.

Whether they realise that kind of cash will depend, of course, on the vagaries of the shale industry, where consistent profits remain elusive. Rising costs and pipeline shortages have put the breaks on growth this year. And like any property boom, an early entry can make a career while being late can break one. Many of the young men admire the late Aubrey McClendon, the founder of Chesapeake Energy, who became a billionaire leasing land for natural gas drilling in the 2000s. But he’s a cautionary tale: He was ousted after he had borrowed heavily betting on rising gas prices that never came.

The young upstarts are unperturbed by all that. With larger rivals continuing to bulk up — $30 billion in deals have been announced in just the past six months — they see themselves as prime takeover targets, and they’re angling for that big payday.

Sellers and Campbell have been friends since their days in junior high school just south of Amarillo. They played football together, first in high school and then at Texas Tech University. Sellers was a defensive lineman and Campbell an offensive lineman who’d go on to have a brief NFL career before a pectoral injury drove him out of the game.

They had gotten into real estate while in college, but business stalled in 2008 due to the financial crisis. So, on the advice of friends, they put whatever they had left into a lease in the Haynesville shale play in East Texas. They were able to quickly sell it to an operator who was looking to drill and made a profit.

For the next four years they perfected the play, expanding to the Eagle Ford in South Texas and the Permian to the west. “It was all in, all in, all in, every time,” Sellers said.

Their model at first was to simply flip leases quickly and then to participate as a non-operating partner in drilling. But they soon saw that the fast-growing world of fracking opened up a massive opportunity, one that fit perfectly with their backgrounds in real estate.

Historically, Permian wells were all vertical, meaning there was no incentive to find adjoining land. But since the late 1990s, when fracking began, shale production has meant drilling sideways, pumping water, sand and chemicals at high pressure to create cracks in rock deep in the ground to release oil or natural gas.

As operators became more sophisticated, they drilled wells longer, running horizontally for two, sometimes three miles. That meant they needed to line up multiple, connected land leases. The shale game became less about finding oil and more about patching together the land needed to drill long wells. That’s what Sellers and Campbell do — put the jigsaw puzzle together. And, of course, several contiguous leases that enable two miles of horizontal drilling are worth exponentially more than by themselves.

“In certain areas we’re in now, it’s thousands of people who could own units you think can be drilled,” Campbell said.

In 2013, private equity came knocking. With the shale revolution well underway, Apollo Global Management backed Sellers and Campbell in an Oklahoma deal in which they more than quadrupled the original investment in a year, they said.

Their biggest payout to date came last year, when they sold about 70 000 acres to Parsley Energy for $2.8 billion. Since then they’ve raised more money from Apollo, assembled an even larger position of 80 000 acres and started a drilling company. Based on recent sales prices, their current holdings could be worth as much as $6 billion. They declined comment on that estimate.

The two have a reputation for being aggressive buyers, freely paying broker commissions, a practice that often held up deals in the past.

“If someone brings us a deal, they’re going to be well-compensated,” Sellers said, as he finished a chicken salad, washed down with Tito’s, a Texas-made vodka, mixed with soda. “Our philosophy is we don’t care what other people make as long as we’re OK with the price.”
Here are profiles of other young Permian executives.

The operators

Sitting by a frack pond in West Texas next to a dirt road one hot August afternoon, Will Hickey, 31, swipes through an app on his phone. It shows the results from a recently drilled well: 2 400 barrels of oil a day. “We’re making a lot of oil, baby!” he says, bumping fists with his business partner James Walter, 30.

Hickey and Walter were working at Pioneer Natural Resources and Denham Capital, respectively, when, in 2015, they decided to go into the oil business together. They moved to Midland and soon spotted an opportunity around the city of Pecos in the Delaware Basin. They raised $75 million from private equity firms Pearl Energy Investment and NGP to start their company, Colgate Energy.

They bought small leases in this less-developed part of the Permian and bet they could buy others nearby or swap with larger companies, Hickey said.

Three years on, they have won $450 million of investment from private equity backers, own rights to 30 000 acres of land and moved into drilling, operating two rigs.

Of their 30 employees, all but one are under 35 years old.

“It’s so fast-paced out here, the land deals, the data, the technology — it’s become more and more a young man’s game,” said Walter. “Our office feels more like Google than Exxon Mobil.”

The investment banker

Mark Hiduke, 31, had always aimed to be an investment banker, but the 2008 financial crisis limited his opportunities as a new graduate of Southern Methodist University. He soon joined Pioneer as part of a seven-member team in charge of buying and selling assets.

He noticed that many deals crossed his desk that were too small for large companies to consider. “Leases were selling for $5 000 an acre,” he said. “I thought, ‘This is crazy, the valuation should be five or six times this.’ ”

With funding obtained from NGP, he started PCORE and bought small, overlooked leases and sold them just 18 months later. The deal made his investors three times their money despite a 68% drop in oil prices, he said.

He began a second company, called PCORE II, in 2016, leasing land in the southern part of the Delaware Basin, which was cheaper at the time than the Midland Basin.

The land man

While running land and mineral ownership searches for Devon Energy Corp. after graduating from Tarleton State University, Tyler Glover, 33, kept coming across an odd name: Texas Pacific Land Trust.

Created to pay back creditors of the bankrupt Texas Pacific railway in the 1880s, the trust owns large swaths of land and mineral royalties in West Texas. After more than 100 years of selling off land, the trust was left with areas in Loving, Reeves and Culberson counties that no one wanted to buy.

It just so happened that this was the core of the Delaware Basin, the western part of the Permian and one of the centres of the shale revolution.

Glover joined Texas Pacific as a land man in 2011, the youngest person at the company by at least 15 years, he said. Texas Pacific had a market value then of just over $1 billion.

As the market woke up to the size of the company’s land holdings (a 1 million acre mix of surface and royalty rights), its value has surged to $6.4 billion to make it the best-performing major US oil stock never to have pumped a barrel of crude. Glover is the chief executive officer, historically an administrative role.

“There is no way anyone could re-create an asset base like this today,” he said. “Because of the value of the land and resources we sit on now, more active management of Texas Pacific is a necessity.”

The sand man

After observing his family’s coal business as a child, Kentucky-born Rhett Bennett, 37, didn’t want to get into mining after graduating from the University of Georgia in 2004. So he jumped into the energy industry and, after a few twists and turns, wound up right back in the mining business.

Not mining for coal, though. Mining for sand, the grit that makes fracking possible.

Bennett first moved to Texas back in 2004. He learned about oil leases from friends and started flipping them. In 2015, he bought a big position in southeast New Mexico and sold it 16 months later to Marathon Oil for $700 million, making five times the original investment for himself and his investors, he said.

Bennett then got into supplying sand for frackers after he noticed that most of the sand used for wells was being transported by train hundreds of miles, from Wisconsin. He opened Black Mountain Sand in West Texas, joining scores of other entrepreneurs trying to muscle out the Wisconsin crowd. He believes his company would be worth about $2 billion on public markets.

“If you’ve been around the last 10 years, you’re as experienced as anybody else,” he said.

© 2018 Bloomberg L.P

Thursday, September 13, 2018

IEA report: Global oil supply hit a record high in August despite Iran, Venezuela fallout

Welders work on the Strategic Petroleum Reserve pipeline on June 1, 1980, in West Hackberry, Louisianna. Begun under President Ford to reduce the threat of oil embargoes, the SPR crude oil is stored in huge underground salt caverns along the Gulf of Mexico, a natural choice due to the proximity of many refineries and distribution points.
Welders work on the Strategic Petroleum Reserve pipeline on June 1, 1980, in West Hackberry, Louisianna. Begun under President Ford to reduce the threat of oil embargoes, the SPR crude oil is stored in huge underground salt caverns along the Gulf of Mexico, a natural choice due to the proximity of many refineries and distribution points.

https://www.cnbc.com/2018/09/13/iea-global-oil-supply-hits-record-despite-iran-venezuela-fallout.html
  • Global oil supply hit a record high in August at 100 million barrels per day (bpd).
  • Higher output from OPEC managed to more than offset seasonal declines from non-OPEC members, which nonetheless increased year-on-year, led by the U.S.
  • August saw OPEC’s crude supply hit a nine-month high of 32.63 million bpd, despite falls in production from major players Venezuela and Iran.
Global oil supply was firing on all cylinders in August, reaching a record 100 million barrels per day (bpd), the International Energy Agency revealed in its monthly Oil Market Report Thursday.

Higher output from Organization of the Petroleum Exporting Countries (OPEC) managed to more than offset seasonal declines from non-OPEC members, although non-OPEC supply was also up 2.6 million bpd in August of the previous year, led by the U.S. The IEA forecasts non-OPEC production to grow by 2 million bpd in 2018 and 1.8 million bpd in in 2019, characterized by "relentless growth led by record output from the U.S."

Meanwhile, August saw OPEC's crude supply hit a nine-month high of 32.63 million bpd, despite concerns over falling production and slashed access in major producers Venezuela and Iran. Higher volumes from Nigeria and Saudi Arabia as well as increased production in Libya and Iraq served to outweigh these drops.

The 15-nation cartel's members agreed to start raising output beginning in July this year to stabilize markets and offset losses in major suppliers Iran and Venezuela, OPEC's third and sixth-largest producers, respectively.

Tehran is facing the loss of most of its energy export markets as the Trump administration prepares to sanction its oil sales on November 4 after pulling out of the Iran nuclear deal in May. August saw Iran's production drop dramatically by 150,000 bpd to 3.63 million bpd, its lowest level since July 2016, as buyers cut orders in the face of impending U.S. penalties.

The Iran deal, known officially as the Joint Comprehensive Plan of Action and signed with five other world powers, offered sanctions relief to the Islamic Republic in exchange for limits to its nuclear program. Renewed sanctions imposed by Washington on other parts of its economy in August have already sent its currency, the rial, into a tailspin.

Meanwhile, Venezuela's protracted economic crisis has led to a production collapse that's seen 1 million bpd wiped off the market in the past two years, and supply there is expected to continue to deteriorate rapidly.

Oil demand less bullish

The demand outlook is less bullish. Global oil demand growth for 2018 and 2019 are unchanged, the IAE reported, remaining at 1.4 million bpd and 1.5 million bpd, respectively.

Weaker demand in Organization for Economic Cooperation and Development (OECD) members in Europe and Asia, as well as higher gas prices in the U.S., put some downward pressure on the pace of demand growth, while shakiness in emerging markets over trade disputes and weakened currencies pose a risk to demand outlook for 2019.

Meanwhile, OECD Americas oil demand is set to post strong growth for 2018. Brent crude prices fell in August but more recently rose to two-month highs around $80 a barrel.

Despite robust production and supply, oil markets are tightening, meaning that a disruption in any major producer could lead to a material impact on prices. "We are entering a very crucial period for the oil market," the IAE report stressed.

"The market is expected to tighten during the later part of this year, because if Iran's exports do fall by a considerable volume, we'll be relying on other producers to increase their output to make up for that," Neil Atkinson, head of the oil industry and markets division at the IEA, told CNBC on Thursday. He described Iraq, Libya, Nigeria and Saudi Arabia as some of the producers having the spare capacity to see more output increases in the coming months.

But this in itself is not certain: instability in Iraq and Libya in particular could disrupt supply levels.

Iraq, OPEC's second-largest producer which saw near-record production in August at 4.65 million bpd, is currently witnessing violent protests in and around Basra, which hosts the majority of its oil production facilities and its only deepwater port. Demonstrators have blocked roads and threatened to shut down oil facilities in protest against failed state services, unemployment and political corruption.
Meanwhile Libya, posting a major output rebound in the same month of 280,000 bpd to reach 950,000 bpd, remains vulnerable to disruptions due to continued unrest and security problems. The U.S. Treasury department in conjunction with the United Nations on Wednesday imposed sanctions on a leading Libyan militia leader for his attacks on vital oil facilities in June.

In terms of the drop in output from Iran and subsequent impact on oil prices, there is "no way of knowing" how much its exports will fall, Atkinson said. While some analysts have suggested oil could hit $100 a barrel in the aftermath of the sanctions, Atkinson refrained from making any calls, saying "it's pure speculation to try and put a figure on it."

"It's a question of waiting to see in these next few weeks how the period in the run-up to November 4th plays out," he said, alluding to planned talks between the U.S. government and other countries like India, China and South Korea. "And then we'll have a clearer idea of where things might go."