Oil surplus set to crash into deficit, energy agency warns as US sanctions take countries offline

Opec suppliers could have to step in to meet a “highly likely” deficit in global oil markets, the International Energy Agency (IEA) has warned months after the oil producing cartel slashed production.

The deficit could reach around 700,000 barrels of oil per day, the IEA said, the same size as the surplus in the first quarter of the year.

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It comes as US sanctions on Venezuela and Iran have taken two major producers offline, while supply concerns are continuing in Libya as fighting continues in the country’s civil war.

The agency said that it was heartened by signals from Saudi Arabia and others that they could step in to replace Iran’s supply after sanctions hardened earlier this week.

Despite a 90,000 barrels a day cut in the growth forecast to 1.3m, and a 700,000 surplus in the first quarter, the IEA said “it is highly likely that the implied balance will flip into an indicative deficit of about the same size.”

Growth was likely to slow, it said, after economic data was weaker than expected in Brazil, China, Japan, Korea and Nigeria.

It remains to be seen whether Opec will step in to fill the gap. The bloc reduced its output earlier this year in response to rapidly falling oil prices after US shale flooded the markets.

In April Opec members collectively produced 440,000 barrels a day less than what they had promised to cut output to.

However, the IEA said it was “reassured to see that the challenges posed by the supply uncertainties are being managed and we hope that major players will continue to work to ensure market stability.”

The government in Tripoli last week threatened to suspend the licenses of 40 international companies, including oil giant Total, in a bid to pressure Europe into helping it fight the Libya National Army.

Escalating tensions with Iran today caused the US to evacuate all non-emergency staff from its embassy in Iraq.

Yesterday two Saudi Arabian oil pumping stations were attacked by Iran-backed Houthi forces from Yemen.

Read more: Attack on Saudi tankers pushes up oil prices

Although the attacks had no impact on production, they just two days after a separate attack, which intelligence agencies believe may be backed by Iran, on two Saudi oil tankers close to the strategically vital Strait of Hormuz.

Oil prices dropped by around 0.8 per cent to $70.64 today as US inventories were shown to be higher than expected.