Global Oil Demand Expected to Exceed Forecasts, Report Says
ARIS, Aug. 11 — Global oil demand is expected to be higher in 2004 and 2005 than initially forecast, increasing pressure on oil producers to boost their output at a time when rising oil prices may hurt a recovering world economy, according to a report by the Paris-based International Energy Agency.
Supply disruptions in Iraq, uncertainty over the fate of Russia's top producer Yukos, and rising demand in China have pushed oil prices to record highs recently. Still, the report published by the agency today tries to dampen concerns that oil is in short supply by pointing to rising production in Saudi Arabia and Russia.
"The market is tight, production and infrastructure capacity is less than desired and uncertainties continue to weight on the market," the report said. "But does this justify $45 oil? Current oil prices are a concern and are causing economic damage."
In an effort to calm jumpy markets, Saudi Arabia, the world's largest oil exporter, said today that it held 1.3 million barrels of idle capacity that could be used to meet demand. Saudi Arabia currently produces 9.5 million barrels a day, according to the energy agency.
Ali al-Naimi, the Saudi oil minister, said the kingdom was trying to ensure stability in the oil market "and prevent oil prices from escalating in a way that may negatively affect the world economy or oil demand."
"For achieving this goal, the kingdom has increased its production during the last three months to meet the growing demand for Saudi oil," he said, in a statement distributed by the Saudi Press Agency. "This increase amounted to more than one million barrels per day, bringing to more than 9.3 million barrels daily the average production of the kingdom during the past three months.
"The Saudis are trying to calm the market now and said they're ready to provide the barrels needed," said Lawrence J. Goldstein, president of the New York-based Petroleum Industry Research Foundation. "That's a welcome comment."
In New York, crude oil for September delivery closed at $44.80 a barrel today. The contract is up 37 percent this year and hit a record of $44.98 on Tuesday, its highest price since futures began trading in New York in 1983.
The Saudi announcement coincided with a report from the U.S. Energy Information Administration that showed American oil stocks had dropped unexpectedly last week as imports shrank. Gasoline stocks also fell.
The International Energy Agency now sees global oil demand at 82.2 million barrels a day in 2004 and 84 million barrels a day in 2005, up about 730,000 barrels a day from previous estimates. The agency's new figures recognize demand that had been previously underestimated, Klaus Rehaag, the author of the agency's monthly oil market report, said in a phone interview.
World oil demand will increase by 1.8 million barrels in 2005, after a record gain of 2.5 million barrels a day this year, the agency said.
"The I.E.A. has finally come around to the realization that global oil demand is strong and rising, fueled by a recovering global economy," Mr. Goldstein said.
Demand from China, which has been growing at a "sizzling" rate since the second half of 2003, may slow down in the second half of this year as the measures taken by the Chinese government to prevent the economy from overheating start to have an impact, the report said.
OPEC, which produces a third of the world's oil, is close to full production capacity. The International Energy Agency found that "effective" spare capacity within OPEC was down to 500,000 barrels a day. The estimate excludes countries like Iraq, Venezuela, Nigeria and Indonesia, which can't boost their production because of disruptions, strikes or civil unrest. OPEC's total spare capacity stands at 1.2 million barrels a day, according to the agency.
OPEC's spare capacity, which usually can be used to boost production when demand grows, has been below 2 million barrels a day since February 2003 while during 2002, OPEC could rely on as much as 7 million barrels a day.
"I basically don't think there is any spare capacity left," said Adam Sieminski, global oil strategist at Deutsche Bank in London. "If you have a hiccup anywhere in the world, you can have prices well above $50 or more."
Oil traders have had to contend with often-contradictory news coming from major oil producers. Yukos, which produces 2 percent of the world's oil and is under investigation for tax fraud, warned last month that it would shut down production. Hours later, that information was denied by Russian authorities.
In Iraq, exports from the country's northern pipeline through Turkey are at a standstill while the government cut shipments through the Persian Gulf on Tuesday after it was warned of possible attacks.
OPEC has already raised its production ceiling twice after meeting in Beirut in June. Still, OPEC's current output is higher than the organization's largely symbolic target of 26 million barrels a day.
OPEC's 11 members produced 29.1 million barrels a day on average last month. Excluding Iraq, whose production has been disrupted by the armed insurgency, OPEC's production was 27.1 million barrels a day in July, up 145,000 barrels a day from the previous month.
The group is scheduled to meet next on Sept. 15 in Vienna. There's not much it can do to help push prices down, analysts said.
Meanwhile supply rose by 550,000 barrels a day in July to 83.5 million barrels a day, as stocks were filled, the International Energy Agency said. More oil should be coming on the market by the end of the year, including an additional 1.2 million barrels a day from non-OPEC sources, like fields in the North Sea, and 400,000 barrels a day from OPEC countries.
The energy agency, an independent body founded 30 years ago by major oil-consuming nations in the aftermath of the Arab oil embargo, pointed out that industrialized nations have vast quantities of oil they keep for emergencies. There are over 1.4 billion barrels of strategic stocks held by agency member countries that "stand at the ready, should they be needed," according to the report.
The strategic stocks haven't been tapped since 1991, after Iraq invaded Kuwait.
In May, the energy agency highlighted the risks of high oil prices on global growth.
In a previous report published with the Organization for Economic Cooperation and Development, the International Energy Agency warned that if oil prices remained at $35 a barrel, or $10 above their 2001 levels, that would slash at least half a percentage point from world G.D.P. the next year.
What do you think? Leave a comment below.
Sign up for regular Resilience bulletins direct to your email.