PARIS – Global oil demand is likely to be muted over the next year and supply and inventory levels look comfortable, the West’s energy agency said Wednesday, implying there is no need to release emergency stocks to curb oil prices.
The United States has been considering an emergency stocks release to help suppress high oil prices, and other members of the International Energy Agency (IEA) such as France and Britain could join the move.
But the IEA, which represents developed energy consuming countries, and the European Union, led by Germany, have opposed a coordinated release of stocks, saying the market does not face a supply crunch.
The IEA’s monthly oil market report Wednesday implied such a release would be unnecessary.
The agency said global oil demand would grow at a steady rate of around 800,000 barrels per day (bpd) or 0.9 percent in both 2012 and 2013, little changed from its previous assessment.
“This modest growth rate reflects the combined effects of sluggish global economic activity, historically elevated oil prices and global improvements in energy efficiency,” it said.
“On a forward demand basis, inventory cover looks more comfortable, due mostly to diminishing demand prospects.”
The IEA said the Organization of the Petroleum Exporting Countries (OPEC), which pumps around a third of the world’s oil, produced 45,000 bpd more oil in August at 31.55 million bpd, due to increases in Angola, Nigeria, Iraq, UAE and Ecuador.
The increase in OPEC supply failed to offset fully unplanned production outages in non-OPEC countries.
But compared to a year ago, global oil production stands 2.0 million bpd higher due to increases from OPEC, which is pumping way above the levels required by the market and therefore contributing to a large stocks build across the world.
The IEA report reinforced the conclusions of an OPEC report Tuesday, and comments by Saudi Arabia’s oil minister Monday, saying the producer group was supplying plenty of crude oil to world markets.
This view is supported by independent analysts, who argue growing oil stocks should eventually curb prices.
Oil prices have risen by almost a third over the last three months and global benchmark Brent crude is now around $116 per barrel, well above the cost of oil supply from all the world’s biggest producer regions.
Olivier Jakob, energy market consultant at Petromatrix in Zug, Switzerland, said recent surges in oil prices would help depress demand eventually.
“This demand destruction is not factored in yet,” he said.
The IEA said the call on OPEC crude and stock change was projected to rise by 1.3 million bpd in the third quarter of 2012 to 31.1 million bpd due to a seasonal quarter-on-quarter uptick in demand of 1.4 million bpd.
However, a projected recovery in non-OPEC supplies in the fourth quarter of 2012 is forecast to cut back the ‘call’ on OPEC by a substantial 0.5 million bpd to just 30.6 million bpd versus its current output of 31.55 million bpd.
The IEA said Iranian oil exports inched up in August to 1.1 million bpd from below 1 million bpd in July. The IEA said OECD industry crude stocks looked sufficient when measured against likely forward consumption.
“Low expectations of future demand are such that the OECD stock cushion actually looks more comfortable today when measured in days of forward demand.”
OPEC crude supply for July is estimated at 31.39 mb/d, around 70 kb/d lower than a downward – revised June total of 31.46 mb/d. Last month saw lower supplies from Iran, Angola and Libya, which countered increases from Iraq, UAE and Qatar. Output has therefore ebbed from an April/May highpoint of near 31.8 mb/d, and now stands just above this report’s assessment of the underlying ‘call on OPEC crude and stock change’ for 3Q12 of 31.0 mb/d. Thereafter, the ‘call’ is seen receding to 30.4 mb/d in 4Q12, before averaging 30.1 mb/d during 2013, slightly lower than envisaged in last month’s report.
After accounting for OECD definitional changes introduced this month, the marginally weaker ‘call’ derives from what is now a more conservative oil demand outlook for the OECD and China.
Effective spare capacity held by OPEC producers is assessed at 2.57 mb/d, slightly higher than the June level of 2.35 mb/d, on account of a higher average 3Q12 installed capacity level, which now forms the basis for comparison with the most recent month’s output.
Angola, Libya, Nigeria, Iraq, Qatar and Ecuador are all seen adding modestly to installed capacity during this quarter, thus boosting very slightly the level of implied spare output capacity within the global oil market. That said, and amid ongoing geopolitical issues affecting supply from a number of major producers, current spare capacity can hardly be considered excessive, the IEA’s “Oil Market Energy Report” for August said.
Non-OPEC production grew by 0.6 mb/d in the first half of 2012, although crude output accounted for only around 20 of percent the growth, with the rest coming from natural gas plant liquids and gas condensates. – SG