The International Energy Agency warned on Thursday that spare oil production capacity risks being “stretched to the limit” as supply disruptions and US sanctions against Iran tighten the market. The Paris-based agency said that while there were signs the rally in oil prices may start to weigh on demand growth, for the moment the key risk is supply capacity, with moves by producers to raise output cutting into the thin buffer of reserve production.

“Rising production from Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world’s spare capacity cushion, which might be stretched to the limit,” the IEA said in its monthly report. “This vulnerability currently underpins oil prices and seems likely to continue doing so. We see no sign of higher production from elsewhere that might ease fears of market tightness,” it said. Financial Times

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