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2008-05-14 09:58:33
Tue May 13, 6:50 AM ET
Record oil prices and a slowdown in advanced economies are set to curb global
oil demand despite growth in China and the Middle East, the IEA forecast on
Tuesday, saying stockpiling was a key factor.
Demand from emerging economies might be set back if governments decide that
fuel subsidies are unsustainable, the International Energy Agency said in a
monthly report.
The report, which cut estimated global oil demand this year for the fourth
month running, also provided figures showing a jump in production of biofuels.
On balance, "despite continued strength in China and the Middle East, it would
seem that the risks to demand (for oil) remain on the downside," the IEA said,
asking "Do we need more oil?"
"While consumers may be adjusting to high oil prices, the full impact of
current high oil prices in excess of 120 dollars per barrel, if sustained, has
yet to be factored into either behaviour or forecasts," it said.
"The most recent data and estimates suggest that the oil market should have
been in surplus for the past two months and should remain in that position for
the rest of 2008 -- as long as OPEC maintains output at current levels."
A driving factor in the recent run-up to record highs of 126 dollars (80 euros)
recently was competition between users seeking to replenish oil inventories and
those buying oil to meet immediate demand.
An IEA analyst, David Fyfe, told AFP "inventories are fairly balanced but we
have a very thin margin of spare capacity and a very large number of
geopolitical risks."
The report said a key factor "is one of stock levels and timing" and that "the
market can only express its demand for higher stocks in a supply-constrained
market through higher prices."
If some players were determined "to build stocks, they have to do so in
competition with those who need crude to meet current demand."
Against this backdrop, the possible unwinding of fuel subsidies could prove
crucial since this would likely force down demand.
"Faced with the realisation that high prices may be with us for some time,
several countries, such as Indonesia, are reassessing the budgetary reality of
sustaining oil price subsidies.
"It will not be easy to unwind them," the IEA warned, saying that "many
countries are wary of civil unrest and may therefore try to cushion low-income
earners with other payments."
But "when such shifts do come, they could cause temporary downward shocks to
demand."
The agency said it now estimated world oil demand last year at 85.8 million
barrels per day, an increase of 1.1 million bpd or 1.3 percent on the 2006
figure but 150,000 barrels less than the estimate given in April.
Demand this year was put at 86.8 million bpd, 1.2 percent more than last year
but 390,000 bpd day less than was estimated in April.
For the 30 advanced economies in the Organisation for Economic Cooperation and
Development, demand estimates had been cut sharply in the light of data for the
first quarter, it said.
North America had "turned out to be much weaker than expected, providing
further evidence of the effects of the the economic slowdown and high prices,"
it noted, adding that Europe too had fallen.
On the supply side, global supplies were down 400,000 bpd in April from the
March figure but a recovery of underlying supplies, begun in the last quarter
of last year, was the strongest since early 2005.
OPEC output in April averaged 31.9 million bpd which was 255,000 barrels less
than an upwardly revised March figure.
The IEA put effective OPEC spare capacity at 2.3 million bpd.
This year, a fall in global demand would be bigger than a fall in supplies from
non-OPEC producers with one effect being to reduce demand for OPEC oil to
31.3-31.6 million bpd.
At the end of March, oil inventories held by industry were equivalent to 53.3
days of consumption, showing little change.