Oil stocks in industrialized nations fell sharply in December and should keep dropping in the first quarter, countering OPEC producers’ fears of a potential surplus, the International Energy Agency said Thursday.
Lower expectations for Russian supply growth, ongoing problems in other non-OPEC producers and fresh increases in demand have helped maintain a strain on oil supplies that fed last year’s 34 percent oil price rise, said the IEA, which advises industrialized nations on energy policy.
Commercial oil stocks in countries in the Organization for Economic Cooperation and Development (OECD) dropped 85 million barrels, or 2.7 million barrels per day (bpd) in December to stand at 2.57 billion barrels, the IEA said in its monthly Oil Market Report.
While a total fourth quarter stock draw of 190,000 bpd was less than a five-year average of 950,000 bpd, it left end-December forward demand cover at 51 days — well below the 56 day level OPEC producers have said they see as excessive.
At OPEC’s Jan. 30 meeting ministers said they could consult by telephone on potential production cuts before a mid-March meeting in Isfahan, Iran if they saw signs that stocks were building to levels that would pressure prices.
Since the end of December, combined petroleum stocks in major consumers Europe, the United States and Japan have slipped around five million barrels according to Reuters calculations. Crude prices for March delivery were up 50 cents at $45.96 a barrel Thursday.
“The high market clearing price of over $40 continues to reflect underlying tightness in the supply and demand balance and broader geopolitical uncertainties,” said the IEA.
Russian supply falls
The IEA said stocks should keep falling in the first quarter and projections of a second quarter build, when consumer demand eases seasonally following the northern winter, should not alarm producers.
“The projected dip in product demand may seem significant at 2.1 million bpd, but … seasonal dips in product demand do not equate to corresponding reductions in crude demand,” the Paris-based agency said.
“OECD crude throughput has, on average, only fallen by 110,000 bpd between the first and second quarters over the past five years. demand is offset by post maintenance ramp-up by Atlantic Basin refineries. Last year, OECD crude throughput actually rose by 150,000 bpd in the second quarter,” it said.
Lower supplies from OPEC’s main producer rival, Russia have helped cut inventories. Russian oil production provisionally fell by 110,000 bpd in January to 9.26 million bpd, a fourth straight monthly decline.
Lower supply from beleaguered producing giant YUKOS cut into supply, said the IEA which also lowered its forecast for Russian production growth this year to 350,000 bpd, or 3.8 percent compared to 8.7 percent in 2004.
The impact of lower-than-expected non-OPEC supplies is magnified by continued growth in consumption, which last year grew at the fastest pace in a generation.
The IEA raised its forecast for world oil consumption in 2005 by 80,000 bpd to 1.52 million bpd, and also lifted its forecast demand for on OPEC’s crude for the first quarter by 400,000 barrels per day to 29.1 million.
The second quarter “call” on OPEC crude was raised by 200,000 bpd to 27.0 million for the second quarter.
OPEC production dropped by 770,000 bpd to 28.8 million bpd in January as members enforced a deal to withdraw one million bpd from Jan. 1, the IEA said.