While global crude markets have swung from a large surplus to a closer balance in the second quarter of 2016, high stock prices are potentially threatening price stability, a report from the International Energy Agency (IEA) concluded Wednesday.
“We may well see crude oil stocks fall back but there is a risk that, unless demand turns out to be stronger than we currently anticipate, products stocks could rise still further and threaten the whole price structure,” the IEA said.
The Middle East’s market share is at the highest level since the late 1970s as the U.S. has seen a decrease in production.
“When U.S. shale production was moving upwards very fast it became fashionable to talk of lower reliance on traditional suppliers,” the IEA said in its report underscoring that the high Middle Eastern numbers should be an “eloquent reminder that even when U.S. shale production does resume its growth, older producers will remain essential for oil markets.”
For a third month, Middle Eastern oil output has hit over 31 million barrels a day. U.S. output has slowed to 12.45 million barrels a day, Bloomberg reported. While stock prices remain at high levels, demand is slowing especially for refined products and could be a "major dampener on oil prices," the IEA reported.
The Paris-based energy agency reported that record high inventory levels pose a threat to oil prices. Oil prices have hovered below $50 a barrel in recent weeks after falling from a high of over $100 a barrel in 2014. Oil prices hit a low earlier this year at $35 a barrel.
The IEA warned that oil prices at around $45 a barrel proved that the road ahead for the industry was not smooth and that demand could slow following the summer months.
“In mid-summer 2016, although market balance is upon us, the existence of very high oil stocks is a threat to the recent stability of oil prices,” the IEA said, CNBC reported.
Members of the Organization of Petroleum Exporting Countries (OPEC) have boosted their output in recent months. Despite the boost, not all members have benefited. OPEC member Venezuela has been hard hit by the fall in global oil prices, with oil production hitting a 13-year low amid an economic crisis that has seen long lines at food stores.