London: Paris based International Energy Agency (IEA), warned that the demand for COVID-19 vaccines coupled with the deadlock oversupply levels with OPEC+ members, could escalate into a price war.

IEA’s concern over scarce oil supply comes less than two months after it issued a landmark report warning that investors should not fund new fossil fuel projects if, the world wants to reach net zero emissions by mid-century.

“The possibility of a market share battle, even if remote, is hanging over markets, as is the potential for high fuel prices to stoke inflation and damage a fragile economic recovery,” the IEA said.

“The OPEC+ stalemate means that until a compromise can be reached, production quotas will remain at July’s levels. In that case, oil markets will tighten significantly as demand rebounds from last year’s COVID-induced plunge,” it added in its monthly oil market report.

A quarrel between the Kingdom of Saudi Arabia and United Arab Emirates (UAE) forced OPEC+, which groups producers from the Organization of the Petroleum Exporting Countries (OPEC), Russia and others, to walk of the talks last week on boosting production after days of negotiations.

In spite of the oil storage levels being at historic lows, due to the pandemic – The draws on oil stocks this autumn are set to be the largest in a decade.

“Oil markets are likely to remain volatile until there is clarity on OPEC+ production policy. And volatility does not help ensure orderly and secure energy transitions – nor is it in the interest of either producers or consumers,” the IEA added.

The IEA said market volatility stoked by the impasse served neither producers nor consumers and that while higher fuel prices could provide an impetus to developing more renewable energy, “volatility does not help ensure orderly and secure energy transitions”. 

— Reuters