IEA Echoes Trump In Calling for Crude Producers to Ease Supply Concerns

Analysts concede that high prices aren't sustainable. File Image / Pixabay

In what could be described as a more polite imitation of what U.S. president Donald Trump has been demanding for months, Fatih Birol, executive director of the International Energy Agency, on Thursday urged major oil producers to take "the right steps" to ease supply concerns that have lifted crude prices to a four-year high.

He said in a telephone interview to media, "It is now high time for all the players, especially those key producers and oil exporters, to consider the situation and take the right steps to comfort the market, otherwise I don't see anybody benefiting.

"Expensive energy is back at a bad time for the global economy."

John Kemp, oil and energy market analyst for Reuters, presumably agrees, and in a Thursday column for the news agency he noted that "only the strength of the dollar against other currencies is masking how high prices have become in oil-consuming countries outside the United States."

He added that although the U.S. blames the Organization for the Petroleum Exporting Countries (OPEC), Russia faults U.S. sanctions against Iran, and Saudi Arabia blames speculators for escalating prices, "In reality, U.S. sanctions, output restrictions by OPEC and its allies, strong consumption growth, and position building among the hedge funds have all contributed to the price surge."

Kemp concluded, "Oil prices tend to overshoot on the upside (2008 and 2011) just as they have done on the downside (1998, 2009 and 2016) before correcting."

What is becoming increasingly clear in the seemingly never-ending opinions expressed by analysts and crude experts is that whether or not they think prices will spike due to the Iran sanctions, they concede (in varying degrees of clarity) the free market truth that high prices of a commodity come in waves and are rarely if ever sustainable.

This much was outlined by Victor Shum, vice president of the energy group at IHS Markit, who told CNBC that while production is growing, "pipeline constraints in the Permian Basin are limited production growth, and that has contributed to the [high] pricing."

He added that increased output from Saudi Arabia and Russia notwithstanding, "the market will get certainly tighter, [and] OPEC spare capacity will get thinner; and so if we have some natural disasters and infrastructure disruptions, we could see much stronger prices."

But Shum also conceded that a significant drop in demand is a real possibility due to growing trade tensions: "Conditions could change quite suddenly."

Perhaps the most pragmatic forecast of what will happen in the near term was supplied earlier this week by John Kemp, founding partner at Again Capital: he said, "I think the Saudis will ultimately step up [production], but they're going to be stingy at first; it's going to be a rough winter for consumers at the gas pump, at the heating oil tank, the airlines - everybody."