IEA says high oil price damaging economy, though supply buffer remains UPDATE
Wednesday, August 11, 2004 10:46:22 AM
(updates with comment on Yukos, Russian future oil production)
PARIS (AFX) - Current high crude prices are damaging the global economy, but while the oil market remains tight, producers retain a buffer to counter potential supply disruptions, the International Energy Agency said
In its August monthly report, the Paris-based organisation raised its projection for global oil demand growth in 2004 to 2.53 mln barrels per day from the 2.5 mln it forecast in July, while leaving its estimate for 2005 unchanged at 1.8 mln
In July, OPEC crude supply averaged 29.1 mln barrels per day, soaring from 28.6 mln in June to its highest level in years, it said. Supply by OPEC states excluding Iraq rose to 27.1 mln bpd compared with a quota target of 25.5 mln
The IEA said concerns remain over the extent of the cartel's spare capacity, and estimated this to have been around 1.2 mln bpd in July on paper
However, OPEC's "effective" spare capacity - excluding Iraq, Venezuela, Nigeria and Indonesia - was in fact less than half this level
OPEC capacity excluding Iraq and Venezuela should increase by a net 370,000 bpd by the end of 2004 and by a further 2.1 mln in the period 2005-2007, the agency said
Overall, the current oil market is tight and current oil prices are a concern and "are causing economic damage"
However, "the market has been living with greater uncertainties for quite some time now ... (and) it has a buffer to cope with potential supply disruptions." Supply is running ahead of demand, and Saudi Arabia has the ability to raise production in the short term
Also, the IEA has more than 1.4 bln barrels of strategic stocks at the ready, should they be needed
Continuing the positive tone, the organisation said that, despite tax claims threatening the future of Russian oil giant Yukos, these circumstances are unlikely to affect the country's status as a leading oil producer
The IEA still sees healthy output growth in Russia, pegging its year-on-year estimates at 710,000 bpd for 2004 and 425,000 bpd for 2005
Even if Yukos is forced into bankruptcy, keeping the oil pumping will probably remain a priority with the company under administration, it added
Also, "recent statements by established players Shell and BP suggest they remain confident they can do business in Russia." On the demand side, short-term growth in the OECD regions appears set to moderate in the second half after surging in the second quarter, the IEA said. In addition, North American demand, which had been leading OECD growth, is expected to show much slower gains
Outside the OECD, demand growth in China is also expected to slow in the second half
But while the prospect for a slowdown there is not in doubt, its scale is far less certain
Despite ongoing demand-side restraint measures, "supply-side measures to boost China's ability to meet soaring energy needs may ultimately lead to a rebound in the pace of demand growth." Global oil supply rose by 550,000 bpd in July to 83.5 mln. In June, OECD industry oil stocks rose by 16 mln barrels to 2.534 bln. Days of forward demand cover remained low at 52 days, fractionally higher than in May
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