Howrah News Service -  Latest news and headlines on Howrah,West Bengal and World: Oil thirst slowing and supplies rise: IEA

Oil thirst slowing and supplies rise: IEA
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newsbyte on 10 June, 2008 09:54:04
 
High global oil prices and cuts in fuel subsidies will slow growth of oil demand
this year, the IEA forecast on Tuesday, reporting also a supply surge of half a
million barrels per day in May.
The IEA, the oil market watchdog for industrialised countries, also sent a
strong message to reassure markets that it would release strategic oil stocks if
supplies were disrupted by tension, or an eventual attack, over Iran's nuclear
programme.
However, the price surge last week to about $140 per barrel "is not just about
geopolitical risks - the supply situation remains tight," the IEA said,
signaling it was uncertain about how supply and demand will play out in the next
six months.
Some market analysts suggest that the $140 price was a bubble that could burst,
and on Tuesday the price was down to $133.94 a barrel.
The head of Russian energy giant Gazprom, Alexei Miller, on Tuesday told a
conference in France however that prices would likely hit $250 a barrel in the
longer term.
But the IEA predicted that that overall, market conditions "may ease" in the
next few months, although they were "unlikely" to mark the end of current market
tensions because underlying high prices "are largely explained by fundamentals."
Already in the industrialised nations of the Organisation for Economic
Cooperation and Development, "oil demand ... is falling," the IEA found.
High oil prices were changing consumer behaviour in OECD members "but they will
take time to filter through."
Airlines were cutting flights and consumers were turning away from SUV vehicles
to fuel-efficient cars and to public transportation.
Overall use of vehicles was falling and consumers were protesting, the IEA
said, but also warned that "absolutely the worst response is to subsidise prices
more, or in the case of the OECD, to cut taxes."
It said it hoped to have a clearer picture of short and medium-term trends when
it published its medium-term oil market report early next month.
Commenting on a record surge of $10.75 in the oil price on Friday, the
International Energy Agency noted in its monthly report that this followed
comments by an Israeli minister that an attack on Iran was "inevitable" if Iran
continued its nuclear enrichment programme.
Acknowledging that the price leap on Friday had been driven partly by
speculators, the International Energy Agency said that the sudden rise was more
a reflection of "risk management rather than speculation."
And commenting on possible threats to supplies because of tension over Iran, it
said that "There is also another supply response to consider: an IEA strategic
stock release. Given that OPEC countries are running close to flat out (supply),
the market can take comfort that the IEA is watching developments very closely
and is prepared to act quickly if necessary."
IEA supply analyst David Fyfe explained after publication of the report that
"We were talking about the hypothetical situation of Iran, if there is a supply
disruption. On the overall state of the market, the IEA said it now expected
global demand for oil to average 86.8 million barrels per day this year, or
80,000 barrels per day below its estimate last month. The downward revision took
account of "the reduction of price subsidies in several non-OECD countries."
When allowance was made for previous upgrades of how much oil had been consumed
in the last two years, the cut in forecast growth of demand this year was nearly
three times higher at 230,000 barrels per day.
This figure put growth in demand this year, from the 2007 level, at 800,000
barrels per day or 0.9 per cent.
And in May, global supplies of oil surged by 490,000 barrels per day to average
86.6 million barrels per day because of increased supplies by the Organization
of Petroleum Exporting Countries.
OPEC production in May rose by 395,000 barrels per day from the April figure to
an average of 32.3 million barrels per day. Saudi Arabia, Nigeria and Angola
increased production, and output from Iraq reached a six-year high point,
implying the highest production since the US-led invasion.
But stocks of oil held in the OECD fell by 8.1 million barrels in April to
2.562 billion barrels "in stark contrast to the typical build." Despite this,
stocks represented an above-average 53.4 days of consumption, the IEA said.
In previous reports the IEA has highlighted the effect of defensive stock
building in pushing up prices.
Fyfe commented that if "OPEC continues to produce at the May level, the stock
build would be much less than normal" and that "the way the second quarter is
looking, the stock build seems to be less than normal."
A shortage of diesel fuel should be met by improved technology in the refining
sector, the report said.
Some analysts say that bottlenecks in diesel refining are a factor behind high
diesel prices.
Fyfe remarked that the market seemed to want increased flexibility with "more
stocks, more (production) capacity or more refining capacity," while noting that
"it takes time to invest in upstream, refining capacity."