IEA Expects Oil Prices to Rise as Market Tightens
By Alex Lawler
Paris, March 12 (Bloomberg) -- Crude oil prices, which have risen 18 percent this year, will probably increase further as OPEC and rivals curtail supplies, offsetting lower-than-expected growth in demand, the International Energy Agency said.
Brent crude oil has surged to $23.50 a barrel on signs the U.S. economy is emerging from recession and on speculation the U.S. may use military force against OPEC member Iraq as it expands its war against terrorism.
Restraint by the Organization of Petroleum Exporting Countries, Norway, Mexico and Oman helped trim world output last month to 75.9 million barrels a day, down 320,000 barrels from January, said the IEA. OPEC meets Friday, and members have said they intend to keep this year's supply cuts in place.
``Production cuts, if they continue, will leave the market relatively short of oil in the second half,'' said Julian Lee, a senior energy analyst at the Centre for Global Energy Studies in London, who expects oil to surpass $25 later this year. ``Weaker demand growth may delay the price increase but won't remove it.''
The agency, an adviser to 26 oil-consuming nations, also slashed its forecast for growth in oil demand this year by 16 percent, or 80,000 barrels a day, to 420,000 barrels. The IEA said the global economic recovery would be ``shallow.''
Klaus Rehaag, editor of the IEA report, declined to be specific about the agency's price outlook.
``The North American economy has bottomed,'' he said. ``It's starting, hopefully, to grow again. It'll take time to generate the oil demand.''
Supply Cuts
Brent crude oil for April delivery slid as much as 48 cents, or 2 percent, today to $23.41 a barrel from yesterday's six-month high after U.S. and U.K. officials met in London and gave no indications an attack on Iraq was imminent. The IEA said prospects of conflict in the Middle East will bolster prices in the months ahead.
``It is reasonable to expect that crude oil prices will continue to strengthen as the market tightens, especially in the face of political uncertainty and heightened risk of supply disruptions and signs of a U.S.-based recovery,'' the agency said in its latest monthly oil market report.
OPEC in November said it wanted competitors to lower output by 500,000 barrels a day starting in January before its members curbed supply by three times as much. Russia, Norway, Mexico, Oman and Angola pledged reductions totaling 462,500 barrels.
The 10 OPEC members who participate in quotas produced 22.44 million barrels a day in February, a drop of 390,000 barrels a day from January though still 740,000 barrels a day more than their official target, the IEA estimated.
Supply from Iraq, which doesn't have an OPEC quota because its trade is under United Nations oversight, rose by 200,000 barrels a day to 2.46 million. OPEC itself doesn't release figures on how much members pump.
Of OPEC's rivals, Norway reduced supply in February by 110,000 barrels daily, Mexico by 100,000 barrels and Oman by 40,000 barrels, the report estimated. Angola made no reduction, maintaining January supply of 870,000 barrels a day in February.
Russia
Russian output of crude oil and natural gas liquids rose by 20,000 barrels a day in February from an average of 7.27 million a month earlier, which itself was 600,000 higher than a year ago, the IEA said. The world's second-biggest exporter will average 7.44 million barrels a day this year, representing annual growth of 420,000 barrels, the agency forecast.
Russia offered to curb exports by 150,000 barrels a day in the first quarter and hasn't made a decision on the second quarter. Venezuela's oil minister, Alvaro Silva, while in Moscow today said he was ``optimistic'' the reduction will be extended.
Still, shipments of crude oil and refined fuels from the former Soviet Union posted their second highest level on record in February at 5.08 million barrels a day. The peak was 5.23 million barrels a day last July.
As producers trimmed output, oil inventories fell by 300,000 barrels a day in January to 2.608 billion barrels in Organization for Economic Cooperation and Development nations, the IEA said.
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