IEA cuts oil demand forecasts, sees OPEC dilemmaadmin
The International Energy Agency has reduced its forecasts for annual world oil demand and said that production cuts by OPEC producers had “ironically” contributed to a recent slump in crude prices.
“Given milder-than-expected temperatures and minor revisions to our economic growth assumption, we have revised downwards our global annual growth forecast for 2006 and 2007,” the IEA said on Thursday in its monthly oil market report.
The IEA, an influential energy watchdog, said it had pared back its estimate for world oil demand this year by 160,000 barrels per day, saying consumption would average 85.8 million bpd, a 1.6-percent rise from 2006.
The agency also cut its estimate of demand in 2006 by 120,000 bpd to 84.4 million bpd, a rise of 0.9 percent from 2005 levels.
The report said the recent fall in oil prices, which are currently at 19-month low points, was mainly because of mild weather in the northern hemisphere, which has reduced demand.
But, after issuing a veiled warning to OPEC in December about the risks of cutting output, this month the watchdog said the cartel had itself contributed to the weaker market.
“Prices have failed to respond to countervailing and renewed efforts by OPEC to stem the downward trend,” the report said.
Firstly, the group had not cut output by so much as it had announced and, secondly, each time the group reduced its output it increased spare capacity in the global system.
Concern about a shortage of spare capacity, within OPEC and elsewhere, has been one of the main drivers of rising oil prices in the last two years.
“Ironically, the deeper OPEC cuts, the higher the rise in confidence that there is marketable spare capacity in the system,” the report said, noting that OPEC spare capacity was now a notional 3.8 million bpd but in reality more like 2.5 million bpd.
The IEA underlined however that the downward price trend could be reversed if stock levels continued to fall and if geopolitical tensions worsened in oil-producing areas.
OPEC has announced two cuts in recent months, the first of 1.2 million barrels per day from November 1 and a further 500,000 bpd to take effect from February 1.
The IEA said output from the OPEC-10, the 10 members of the 12-member group bound by quotas, was 27.0 million bpd in December, meaning the group had cut only 665,000 bpd instead of the 1.2 million bpd implied by the November cut.
Total world supply increased by 110,000 barrels per day in December to reach 85.4 million bpd, with increases centred in North America and the North Sea.
For 2007, the IEA said it had “significantly” cut its estimates of non-OPEAC supply, despite recent growth in output from countries outside the cartel.
The bulk of the reduction was because of recent announcements that Norwegian and Mexican production would be markedly lower in 2007 than initially announced, as well as a lower-than-forecast output from Canada, Cuba and Ecuador.