The International Energy Agency (IEA) has warned that energy prices and volatility in the sector could rise further due to supply issues among the group of major producing nations.
In its latest monthly report on Friday it said failures to meet pledges, from members of the Organisation of the Petroleum Exporting Countries (OPEC) and their allies, has meant that oil prices have rocketed to their highest levels since 2014.
Benchmark crude prices (BZ=F) rose by more than 15% in January to cross the $90 (£66) per barrel threshold for the first time in more than seven years. Global oil stocks at multi-year lows and dwindling spare capacity have left the market with only a small cushion.
The group, OPEC+, which includes allies such as Russia, has been increasing their supply in small increments in a bid to keep up with oil demand and decrease stockpiles from the height of the pandemic.
There were also signs that the shortfall was worsening, the IEA said, adding to the tightness in an already stretched market.
OECD industry oil inventories plunged by a hefty 60 mb in December, to stand 255 mb below the five-year average and at their lowest level in seven years. Over the past 12 months, industry stocks have declined by 355 mb despite the release of more than 50 mb of oil from government reserves over the same period.
“Further increases are expected in the coming months as new projects start up and US shale continues to respond to higher prices. That has led us to raise our forecast for US oil supply growth for 2022 to 1.2 mb/d.”
The Paris-based agency added that Saudi Arabia and the United Arab Emirates (UAE), the two oil producers with the most spare production capacity, could help ease volatile oil markets if they pumped more crude.
The move could help relieve dwindling global oil inventories that have helped push prices towards $100 a barrel recently — which has been one of the factors pushing up inflation.
"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 IEA said.
“But 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.”
OPEC+ has faced mounting pressure in recent months to hike supply thanks to stronger-than-expected demand. At their latest meeting last week, the group said they would maintain their planned increases in output of 400,000 barrels a day in March.
“Chronic underperformance by OPEC+ in meeting its output targets and rising geopolitical tensions have propelled oil prices higher,” the IEA report said.
It added that effective spare capacity could fall to 2.5 million barrels per day (bpd) by the end of the year, held up almost entirely by Saudi Arabia and, to a lesser extent, the UAE.