Signs that countries are buckling under the burden of $120 oil prices became clearer on Tuesday as the International Energy Agency slashed its forecasts of oil demand for this year.
The developed countries’ energy watchdog now expects world demand to grow by 1.2 per cent, to 86.8m barrels a day, in 2008. This month’s 390,000 b/d revision was the fourth in a row, but the IEA warned there could be more to come as better data emerged.
New indications that North American demand was slowing more rapidly than expected and that oil consumers in small developing countries were struggling to pay high oil prices prompted the revision. Growth this year is now expected to come from China, which recently retrenched its subsidy programme, and from cash-rich Middle East oil producers.
Thomas Stenvoll, an analyst at UBS, the investment bank, said: “The impact of an OECD-wide recession stands front and centre of this month’s IEA report.” He noted this put the IEA closer in line with other forecasters.
The drop in demand means oil markets are adequately supplied, the IEA acknowledged, reducing some pressure on the Opec cartel to pump more oil.
“The most recent data and estimates suggest the oil market should have been in surplus the past two months and should remain in that position for the rest of this year – as long as Opec maintains its production at current levels,” the IEA said.
Even so, international oil prices, which last week hit records in excess of $126 a barrel, twice their level a year ago, on Tuesday reached $126.98 after only a brief bout of profit-taking prompted by the report.
The IEA blamed the high prices on fears for future supply and more specifically on the lack of spare volumes. That includes the extra production capacity Saudi Arabia could tap in the event of a sudden outage elsewhere and the volume of inventories in storage tanks in consuming countries.
Opec spare capacity stands at 2.3m barrels a day, the IEA said. But it warned that “refinery outages, crude quality and high prices means much of this oil would be difficult to market at current conditions”. Inventories in OECD countries dipped, but those in developing countries were more difficult to calculate. The IEA said it suspected some inventory filling was not being reported and that consumers were hoarding oil in case prices rose higher.
It called on Opec to give a “clear indication that it will rapidly provide more oil if stocks do not build in the very near future. An even more powerful signal would be to provide more oil now.”
Several Opec ministers said last week they did not feel the group needed to meet ahead of its next meeting in September, indicating that a broad change in production policy was unlikely.
