International Energy Agency: More OPEC Oil Needed

June 16, 2011
Emerging markets will drive prices higher, agency concludes.

More OPEC is oil needed to steady markets, where a bull run in oil prices has been driven by fundamentals, and emerging markets are set to stoke demand and keep prices above $100 a barrel, the IEA said Thursday.

The International Energy Agency in its latest monthly report dropped its forecast for non-OPEC oil supplies this year by 0.4 million barrels per day (mbd), but said there are indications that members of the oil cartel are increasing output.

IEA Executive Director Nobuo Tanaka, speaking at the presentation of the report in Saint Petersburg, said "the question is how fast and how much they can do."

Last week, the IEA expressed disappointment with OPEC's decision not to boost output quotas given persistently high prices, supply shocks and rising seasonal demand, which it said threatened to undermine economic recovery.

It urged OPEC producers to pump above quota, and its latest monthly data noted that the 11 cartel members in the quota system produced 26.50 mbd, an increase from 26.38 mbd in April, and considerably above the 24.84-mbd target.

"If the current price level continues, it will be at the detriment of the global economic recovery," added Tanaka.

World oil prices rebounded slightly following the publication of the report and as traders went bargain hunting following losses the previous day, analysts said.

New York's main contract, West Texas Intermediate (WTI) light sweet crude for July delivery, added 39 cents to $95.20 a barrel in London trading, while Brent North Sea crude for August won $1.41 to $114.42 a barrel.

Despite the supply worries, the IEA nudged up its global oil demand forecast for 2011 from its previous monthly report by 0.1 million barrels per day (mbd) to 89.3 mbd.

'Supply-and-Demand Fundamentals' Driving Prices

The IEA, the energy policy arm of the 34-member Organization for Economic Cooperation and Development (OECD), said the rise in oil prices is due to fundamentals, not speculation.

Given diminished supply flexibility in the global market "the bull run evident since autumn 2010 ... looks in large part to be justified by supply-and-demand fundamentals," the IEA said in a separate report.

Moreover, "despite increased upstream activity levels and resurgent non-OPEC supply, spare capacity has diminished."

It forecast both oil prices and demand to increase over the medium term due to rising demand from emerging markets, with China alone expected to account for over 40% of the increased demand.

It hiked its medium-term price assumption by $15 to $20 per barrel, with an average price of $103 per barrel now underpinning its forecasts.

"Income outstrips high crude prices in the growth markets in the face of persistent, if gradually diminishing, end-use price subsidies," noted the IEA.

While per-capita oil use levels will remain lower than in the OECD, it said demographics, urbanization and industrialization will "push demand in the emerging markets sharply higher."

The IEA said countries with per-capita annual income of $3,000 to $20,000 will account for nearly half of global demand by 2016, roughly double the level of two decades ago.

It sees demand rising to 90.63 mbd in 2012, an increase of 0.6 mbd from its previous forecast in December.

The IEA now forecasts demand to rise to 91.92 mbd in 2013 (+0.74 mbd), 93.13 mbd in 2014 (+0.83 mbd), 94.24 mbd in 2015 (+0.85 mbd) and 95.26 mbd in 2016.

The IEA sees the oil market as being particularly tight this year and next, with the spare capacity of the OPEC oil cartel falling to 3.5% to 3.7% of global demand, although this is expected to ease somewhat later.

While high prices are expected to lead to increased global capacity from 93.8 mbd to 100.6 mbd by 2016, most of this new oil will be from more expensive areas to drill.

The IEA warned that a slump in oil prices and slower global growth might not bring much relief in supplies as producers put off expensive investments, while demand in emerging economies likely will grow.

Copyright Agence France-Presse, 2011

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