IEA lifts oil demand forecast, saying high prices hurting
The International Energy Agency (IEA), the oil adviser to 26 industrialized nations, raised its projections for oil demand this year and next and said record prices are hurting the world economy.
"These oil prices are like a major tax increase," said Klaus Rehaag, the editor of the Paris-based IEA's monthly oil report, published on Wednesday. "It's one thing to have prices go up for a short time, but we've had consistently high prices now."
Crude oil in New York has risen 37 per cent this year and was at US$44.44 on Wednesday, as economies grew in China and the United States, straining oil-producing countries while threats emerged to supplies from Iraq and Russia's largest oil exporter, OAO Yukos Oil Co.
Oil demand this year will average 82.2 million barrels a day, 700,000 more than a July estimate, after changes to historical data, the IEA report said. In 2005, use will average 84 million a day, also 700,000 more than earlier forecast.
The IEA said it has underestimated oil use for years and is recognizing that demand now in an annual review. The change comes from higher-than-estimated use in nations outside the Organization for Economic Co-operation and Development (OECD).
"This probably helps explain why prices are as high as they are," said Adam Sieminski, Deutsche Bank AG's oil strategist in London. "OPEC is struggling to meet demand for its crude oil."
The 11-nation Organization of Petroleum Exporting Countries (OPEC) is pumping near its limits to keep up with demand and build inventories. Crude oil topped US$45 on Tuesday for the first time in the 21-year history of futures trading in New York.
World demand will jump by 1.8 million barrels a day in 2005, after a record gain of 2.5 million this year, the IEA said, confirming previous forecasts.
The IEA was founded in 1974 after the Arab oil embargo of the previous year caused a surge in prices that hurt western economies. Members hold oil inventories to prevent shortages, which are "ready" for use if needed, the report said.
"Over 1.4 billion barrels of IEA strategic stocks stand at the ready, should they be needed," it said. The IEA has not tapped the stockpile since 1991, when Iraqi and Kuwait output were shut off by the 1990-1991 Gulf war.
Expectations that oil demand would slow played a part in a February OPEC decision to cut output, a move that caused prices to rise. The IEA's estimate of 2004 demand has climbed 3.5 per cent from 79.4 million barrels a day forecast in October.
The bulk of the change to demand outside the OECD relates to ethane use in Saudi Arabia, the IEA said. Getting oil data for non-OECD countries, some of which do not have a statistics gathering agency, can be difficult, Rehaag said.
"In Russia, China, India, it's difficult to get reliable monthly data," Rehaag said. "It's not surprising we have revisions."
The IEA tried to reassure oil markets, saying it expects Russia to ensure oil flows.
"The upward revisions to demand surely make a big difference," said Kevin Norrish, an analyst at Barclays Capital in London.
"Every report that comes out paints a tighter and tighter picture of the market."
World production is rising after a June pledge by Saudi Arabia, the largest oil exporter, and the rest of OPEC, to increase output. Supply rose by 550,000 barrels a day in July to 83.5 million barrels a day, the IEA said.
OPEC oil output reached 29.1 million barrels a day in July, 450,000 more than in June, and is likely to increase further in August, the IEA said. The increase has thinned the group's cushion to respond to any supply breaks.
OPEC now holds about 500,000 barrels a day of "effective" spare capacity, the IEA said. It will add another 370,000 barrels a day by the end of the year and 680,000 barrels more in 2005.
Current spare capacity represents less than a third of daily output from Yukos. The Russian company may be forced to cut shipments abroad by as much as 700,000 barrels a day, Russia's energy industry regulator said on Wednesday.
OPEC's unused capacity has been under 2 million barrels a day since February 2003, less than as much as 7 million in most of 2002, the IEA said. Non-OPEC nations usually pump as much oil as they can, leaving the only spare capacity in OPEC countries, which produce more than a third of the world's oil.
The IEA raised its estimate of the need for OPEC oil, known as the call on OPEC, next quarter by 600,000 barrels a day to 28.4 million. Oil consumption peaks in the fourth quarter, as consumers in the Northern Hemisphere use more heating fuel.
(China Daily 08/13/2004 page12)
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