Energy market participants may be able to adjust to U.S. sanctions against Venezuela's crude industry, the IEA said in its closely-watched report on Tuesday.
The report comes at a time when tensions in Venezuela are reaching boiling point, with the oil-rich, but cash-poor, country in the midst of the Western Hemisphere's worst humanitarian crisis in recent memory.
President Donald Trump's administration imposed targeted crude sanctions on Caracas late last month. The surprise move was designed to bar President Nicolas Maduro's access to oil revenue that has helped his embattled administration remain in power.
"The imposition of sanctions by the United States against Venezuela's state oil company Petroleos de Venezuela (PDVSA) is another reminder of the huge importance for oil of political events," the Paris-based IEA said Tuesday.
"Even so, headline benchmark crude oil prices have hardly changed on news of the sanctions. This is because, in terms of crude oil quantity, markets may be able to adjust after initial logistical dislocations," the group added.
International benchmark Brent crude traded at around $62.90 Tuesday morning, up 0.8 percent, while U.S. West Texas Intermediate (WTI) stood at $53.46, more than 0.6 percent higher.
Since plummeting more than 40 percent between early October and late December last year, Brent crude has gradually pared some of its losses.
Supply issues in OPEC-member Venezuela and OPEC-led production cuts from the start of the year have bolstered crude futures in recent weeks.
The IEA said oil prices had not increased "alarmingly" since U.S. sanctions were imposed on Venezuela because the market is still working off the surpluses built up in the second half of 2018 — when global supply was estimated to have exceeded demand by 1.3 million barrels per day (b/d).
"Crude oil quality is another issue, and, in the wider context of supply in the early part of 2019, it is even more important," the IEA said.
Venezuela, which has the world's largest proven oil reserves, typically produces extra heavy oil. The dense crudes are much more difficult to refine and tend to contain significant quantities of sulfur and other impurities that are costly to remove.
Before U.S. sanctions came into force at the end of January, Washington shipped large amounts of naphtha to Venezuela. This would help the oil-rich, but cash-poor, country dilute its extra heavy oil for export around the world.
But, "with the import of diluents now sanctioned by the U.S., and problems in producing its own lighter crudes, PDVSA will have a tough job to make enough on spec barrels available for export," the IEA said.
In the two weeks since the sanctions were announced, Venezuela's crude exports have reportedly tapered off and shifted toward to cash-paying buyers — such as India.
"In quantity terms, in 2019 the U.S. alone will grow its crude oil production by more than Venezuela's current output," the IEA said. "In quality terms, it is more complicated. Quality matters."
The IEA said Tuesday that its estimates for global oil demand growth in 2018 and 2019 remained unchanged at 1.3 million b/d and 1.4 million b/d, respectively.
It said OPEC crude output was 930 thousand b/d lower in January at 30.83 million b/d, hitting a nearly four-year low.
On Monday, a report from OPEC showed the Middle East-dominated group fell just short of its production goal in January, as a fresh round of production cuts got underway.
OPEC is partnering with 10 non-member nations, including Russia, to keep 1.2 million bpd off the market. The so-called OPEC+ alliance aims to prevent another price-crushing oil glut like the one that gripped the market between 2014 and 2016.
Total OPEC production stood at just over 30.8 million bpd in January, down from 31.6 million bpd in December, according to independent sources cited by the group in its monthly report.
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