Bloomberg News

IEA Sees Tighter Oil Market, High Prices on Supply Risks

May 11, 2012

The International Energy Agency said global oil markets are “marginally tighter” after raising its demand forecast, and predicted that geopolitical risks to crude supply will keep prices high.

The IEA made a “modest” 80,000 barrel-a-day increase to estimates for oil consumption in 2012 following more positive economic growth projections by the International Monetary Fund, and trimmed its assessment for supplies from outside OPEC. Still, inventories are above their five-year average for the first time in a year. The impact of sanctions on Iran is “near the top” of threats to crude supplies, the agency said.

Brent crude futures have lost 11 percent in the past two months, trading at about $112 a barrel today, as the global recovery sputters and concern recedes that tougher sanctions by Western nations against Iran over its nuclear program will spark a wider conflict. The European Union will halt crude imports from the Islamic republic as of July.

“Our global oil balance this month paints a marginally tighter picture,” the Paris-based IEA said today in its monthly oil-market report. “The path of market fundamentals for the rest of the year remains highly uncertain and geopolitical risks will likely continue to keep prices high.”

‘Plentiful’ Supplies

Global oil use will increase by 0.9 percent to 90 million barrels a day, the IEA said. The Organization of Petroleum Exporting Countries said yesterday in its monthly report that supplies are “plentiful” and in excess of needs, estimating 2012 world demand at 88.7 million barrels.

“The OPEC report is backward-looking and the IEA report is forward-looking,” said Harry Tchilinguirian, head of commodity- markets strategy at BNP Paribas SA in London. “OPEC is trying to talk down prices with a relatively sanguine assessment of conditions in the second quarter, but in the end it’s not present conditions that matter but what’s going to come next.”

Spare production capacity, estimated at 2.4 million barrels a day by the IEA, will narrow as the year progresses as demand picks up and the embargo on Iran constrains supplies, BNP’s Tchilinguirian said.

Oil inventories in industrialized nations rose above their five-year average for the first time since May 2011 amid higher- than-required OPEC production, the agency said.

Rising Inventories

Stockpiles held by companies in the 34 nations that make up the Organization of Economic Cooperation and Development climbed 13.5 million barrels to 2.6 billion in March, according to the report. Inventories equate to about 60.3 days’ worth of consumption, or 3 days more than their seasonal five-year norm.

OPEC, responsible for about 40 percent of global output, bolstered production by 410,000 barrels a day to 31.85 million barrels last month, amid higher output from Iraq, Nigeria and Libya, according to the IEA. That leaves the group’s output at about 2.3 million more than is needed in the second quarter.

“OPEC production is substantially above the underlying requirement for its oil for the year, and the market has taken a degree of comfort from that,” David Fyfe, Paris-based head of the IEA’s markets and industry division, said by mobile telephone. “But it would be dangerous to assume it’s a completely comfortable market given the uncertainty about non- OPEC supply.”

The IEA reduced assessments for supplies from outside OPEC in 2012 by 100,000 barrels a day because of lower estimates for Brazilian production. Non-OPEC producers such as Canada, Brazil and Russia will increase output by 600,000 barrels a day to 53.3 million a day this year.

While tapping its emergency stockpiles is “an option that’s on the table” if any of the current political risks trigger a supply disruption, “as we stand there’s no specific plan” to release reserves, Fyfe said.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net


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