Millions of barrels of oil were taken off the market due to the underperformance of some producers in the bloc.
Oil prices have rallied on higher demand, the inability of some Opec member countries to quickly ramp up production as well as rising geo-political tensions over Ukraine. Reuters
An oil supply shortfall from Opec+ group of countries may lead to a tighter market and push prices higher, according to the International Energy Agency.
The 23-member bloc’s prolonged underperformance has effectively taken 300 million barrels, or 800,000 barrels per day, off the market since the start of 2021, the Paris-based agency said in its monthly market report on Friday.
“That shortfall is expected to deepen as some Opec+ members struggle with production constraints, exacerbating market tightness,” it said.
Oil prices have rallied on a faster-than-expected economic recovery, resulting in higher demand and the inability of some Opec member countries to quickly ramp up production due to underinvestment in the industry. Rising geopolitical tensions over Ukraine have also boosted prices.
Brent, the global benchmark for two thirds of the world's oil, was trading at $91.79 per barrel at 2.30pm UAE time on Friday, while West Texas Intermediate, the gauge that tracks US crude, was at $90.38 per barrel.
Spare capacity is almost entirely held by two producers including Saudi Arabia and the UAE, according to the report.
“If the persistent gap between Opec+ output and its target levels continues, supply tensions will rise, increasing the likelihood of more volatility and upward pressure on prices,” the report said. However, 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 IEA's projections come as investment in the oil and gas sector drops amid green transition efforts by the governments. Total investment in the upstream sector of the oil and gas sector fell 23 per cent below the pre-coronavirus levels to $341 billion in 2021, a new report by the International Energy Forum and IHS Markit said in December.
The global oil and gas industry requires more than $600bn of investment annually until 2030 to keep pace with the rising demand, Dr Sultan Al Jaber, UAE Minister of Industry and Advanced Technology and managing director and group chief executive of Adnoc, told the Abu Dhabi International Petroleum Exhibition and Conference last year.
Despite higher demand and the recurring failure of Opec+ to meet its targets, the market is still set to shift to surplus in 2022, the IEA said. “Non-Opec+ producers could add 2 million bpd of supply, and if Opec+ cuts are fully unwound, the bloc could increase output by 4.3 million bpd.”
The Opec+ group, which achieved a historic reduction of 9.7 million barrels per day between May 2020 and July last year, is unwinding cuts due to improving demand. The group is adding 400,000 barrels per day to the market every month.
JP Morgan, the largest lender in the US, predicts Brent will "overshoot" to $125 a barrel this year and $150 in 2023 due to underinvestment in the oil and gas sector.
World oil demand is set to expand by 3.2 million bpd this year, to reach 100.6 million bpd, as restrictions to contain the spread of Covid ease, the IEA report said.