Oil group sees glut of crude lasting through 1999
By Richard Mably
Friday August 7 1:58 PM EDT
LONDON (Reuters) - The world's oil glut will get worse before it gets better, with a huge excess of inventories set to spill over well into next year, a group of industrial oil-consuming countries said Friday.
Publishing its first projections for 1999, the group, the International Energy Agency, said it was expecting a modest recovery in demand for oil worldwide.
But it warned that another downturn in Asia's troubled economies could mean more pain for oil producers already struggling with the lowest prices in 10 years.
"It is difficult to foresee the excess stock overhang problem resolved until well into 1999 at the earliest," the IEA said in its monthly Oil Market Report.
"So 1999 is likely to inherit an oil market heavily burdened with excess stocks, an unresolved Asian financial crisis (and) a delicate production agreement among OPEC and a few non-OPEC producers."
"If stocks stay high then that's certainly not going to be bullish for oil prices," added the IEA's Roberto Sieber.
Benchmark Brent blend crude traded at just $12.80 a barrel on Friday, a third lower than average prices last year.
The IEA said its initial 1999 projection was for demand growth of 1.6 million barrels a day to 76.3 million barrels daily from 74.7 million in 1998.
Asian oil demand is set in 1998 to post an unprecedented downturn and growth in demand in Russia is expected by be "severely dented."
The IEA sees Asian consumption rising next year to 20.25 million barrels daily from 19.77 million this year and 19.83 million in 1997.
But it warned that a second dip in the Asian economies and weakening demand elsewhere would mean another round of oil producers' supply cuts.
"The 'Asian contagion' scenario did not come true in 1998 but it remains a real threat to non-Asian developing countries, their trade with the OECD and world oil demand," the agency said.
The picture is not one to please oil producers still struggling to reverse a build in oil stocks that set yet another record in June.
The IEA said supplies were still exceeding demand despite the two rounds of output cuts engineered since March by OPEC and other producing nations.
Commercial stocks held in the industrialised nations of the OECD hit 2.79 billion barrels at the end of June. That was 209 million more than a year earlier and 291 million higher than end-June 1996.
Space for heating oil and diesel inventories ahead of the northern hemisphere winter was already "increasingly scarce," the IEA said.
OPEC's best efforts so far have proved too puny to reverse the stockbuild.
The Organisation of the Petroleum Exporting Countries led a reduction of world supplies in July of some 500,000 bpd to 75.16 million.
But, said the IEA, even assuming further supply cuts the world's hoard of oil is likely to grow even further in July and August.
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