Reports of another attack on oil supply in the Middle East pushed prices higher early on Friday but the gains faded fast as markets focused again on weaker demand growth and a supply glut that shows no signs of evaporating.
The International Energy Agency said in its monthly report that commercial oil stocks held by OECD countries were close to record levels of more than 3 billion barrels, a level last seen in 2016. IEA member states hold an additional 1.6 billion barrels in strategic reserves.
At the same time, the IEA cut its forecast for oil demand growth this year and next due to the slowing global economy, and said a new wave of production was expected to come on stream, outweighing fears about supply security.
Iranian state news agency IRNA reported Friday that an oil tanker belonging to the National Iranian Oil Company had been hit by two missiles, causing oil to spill into the Red Sea.
The report immediately lifted Brent crude oil prices by 2% to above $60 a barrel — still well below the levels reached following a missile attack last month that wiped out half of Saudi Arabia’s oil production. US crude futures rose by a similar margin to nearly $55 a barrel. By 9.30 a.m. ET, they were up 0.9% at just over $54.
The attack on Saudi Arabia disrupted more than 5% of the global supply of crude, sending Brent crude prices as high as $70 a barrel.
But even then, prices quickly fell back to below the level they were trading at immediately before the attacks on reassurances from Saudi Arabia that normal operations would resume, the IEA said.
Friday’s reported attack on the Iranian tanker mattered more from a political perspective than in terms of supply, given that sanctions against Iran meant it had few buyers for its oil, said Richard Mallinson, a senior analyst at Energy Aspects.
Supply could be impacted if the attack provoked retaliation and tensions in the Gulf region escalated, Mallinson told CNN Business. For now, though, the underlying supply-demand balance was taking center stage. “The market is very worried about demand and the state of the economy. There is a perception that next year there will be too much supply around,” Mallinson said.
Supply growth from countries outside the Organization of the Petroleum Exporting Countries would accelerate next year, led by the United States, Brazil and Norway, the IEA said. It pegged non-OPEC supply growth at 2.2 million barrels per day in 2020, up from a previous forecast of 1.8 million.
Still, the renewed focus on demand and supply fundamentals did not mean that the Saudi attacks could be “shrugged off,” the IEA said. “Further incidents of this nature in the strategically important Gulf region could happen and cause even greater disruption,” it added.