‘Saudi Arabia, UAE could ease oil market volatility’

LONDON: Saudi Arabia and the United Arab Emirates (UAE) could help to calm oil markets if they pumped more crude, the International Energy Agency (IEA) said.

Brent crude oil futures bounced back to near seven-year highs and hit a session peak of $92.75 a barrel after the Paris-based agency reported tight global supply and spare production capacity.

"These risks, which have broad economic implications, could be reduced if producers in the Middle East with spare capacity were to compensate for those running out," the Paris-based agency said in its monthly oil report.

The UAE and Saudi Arabia are the two oil producers with the most spare production capacity.

"Oil prices are rallying once more as the IEA raised forecasts for demand this year and confirmed that OPEC+ missed its output targets again in January and by an even wider margin," said Craig Erlam, senior market analyst at OANDA.

The IEA said if OPEC+ - the Organization of the Petroleum Exporting Countries members and allies like Russia - unwind their current output cuts completely, they could add 4.3 million barrels per day (bpd) back into the market.

However, the IEA said that would slash effective spare capacity to 2.5 million bpd by the end of the year, held up almost entirely by Saudi Arabia and, to a lesser extent, the UAE.

For now, while OPEC+ is raising output each month, it is not hitting its monthly target of 400,000 extra barrels per day. The IEA said in January the gap between output and the target widened to 900,000 bpd.

"The bloc’s prolonged underperformance has effectively taken 300 million barrels, or 800,000 bpd, off the market since the start of 2021," the IEA said.

A successful outcome to international talks with Iran could lift U.S. sanctions on the country's exports and relieve supply tightness, the IEA added, gradually bringing 1.3 million bpd of Iranian oil back into the market.

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

The need to refill depleted oil stocks, which in OECD countries fell by 60 million barrels in December down to seven-year lows, means immediate oversupply is unlikely.

Oil prices ended 3 percent higher on Friday at fresh seven-year highs as escalating fears of an invasion of Ukraine by Russia, a top energy producer, added to concerns over tight global crude supplies.

Russia has massed enough troops near Ukraine to launch a major invasion, Washington said, as it urged all U.S. citizens to leave the country within 48 hours.

Brent crude futures settled $3.03, or 3.3 percent, higher at $94.44 a barrel, while U.S. West Texas Intermediate crude rose $3.22, or 3.6 percent, to $93.10 a barrel.

Both benchmarks touched their highest since late 2014, surpassing the highs hit on Monday, and posted their eighth consecutive week of gains on growing concerns about global supplies as demand recovers from the coronavirus pandemic.

Trading volumes spiked in the last hour of trading, with volumes for global benchmark Brent climbing to their highest in more than two months.

"The market doesn't want to be short going into the weekend ... if an invasion appears to be imminent and you know that there will be retaliatory sanction that will result in a disruption in natural gas and oil supplies," Andrew Lipow, president of Lipow Oil Associates in Houston.

The IEA raised its 2022 demand forecast and expects global demand to expand by 3.2 million barrels per day (bpd) this year, reaching an all-time record 100.6 million bpd.

The energy watchdog's report follows the Organization of the Petroleum Exporting Countries' warning earlier this week that world oil demand might rise even more steeply this year on a strong post-pandemic economic recovery.

The Biden administration responded to high prices by again stating this week that it has been talking with large producers about more output, as well as the possibility of additional strategic releases from large consumers, as it did late last year.

Indirect U.S.-Iran nuclear talks resumed this week after a 10-day break. A deal could see the lifting of sanctions on Iranian oil and ease supply tightness.

In the United States, drillers added the most oil rigs in a week in four years, with the rig count, an indicator of future production, rising 19 to 516, its highest since April 2020, energy services firm Baker Hughes Co said.