The International Energy Agency, in its March Oil Market Report, reduced its 2006 global oil demand growth forecast by 290,000 b/d to 1.49 million b/d because of high prices for petroleum products in Southeast Asia (OGJ Online, Mar. 14, 2006).
Deutsche Bank AG described the reduction as "a bold step" for IEA. Although regional economic activity remains relatively strong, IEA estimates oil consumption in Indonesia could decline as much as 20% in 2006 because of rising fuel prices. Deutsche Bank said, "New car sales in Europe are about 50% diesel-powered, and this is supporting rising efficiency. The situation in China remains murky as usual, but it appears that demand there has settled into a more routine growth pattern than the extraordinary increases of 2003-04."
However, Jacques Rousseau at Friedman, Billings, Ramsey & Co. Inc., Arlington, Va., said: "IEA's prior forecast appeared too optimistic, given that last year's demand increase was only 1 million b/d, forecasts are similar for both 2005 and 2006 global GDP [gross domestic product], and because we believe that sustained high crude oil prices should slow consumption, especially in non-OECD [Organization for Economic Cooperation and Development] regions." He said fundamentals are "softening," but the main reason crude prices have increased over the past few yearsthe lack of spare upstream and downstream capacityhasn't changed.
IEA raised its projected 2006 "call" on the Organization of Petroleum Exporting Counties (the amount of crude the cartel will need to produce to balance global supply and demand) to 29 million b/d, just below the group's estimated sustainable production capacity of 30 million b/d (excluding Iraq). "However, this includes the addition of Venezuelan heavy oil production into the analysis," Rousseau said (OGJ Online, Mar. 14, 2006).
OPEC subsequently reduced its 2006 projection of global oil demand growth by 110,000 b/d to 1.46 million b/d. The cartel expects global demand to average 84.5 million b/d this year, with OPEC supplying 28.4 million b/d. OPEC ministers earlier this month voted to maintain their current production quota of 28 million b/d until the group's next meeting June 1 in Venezuela. However, the US Energy Information Administration said the 10 OPEC members affected by that quota actually produced 27.9 million b/d in February (OGJ Online, Mar. 9, 2006).
Meanwhile, Iraq said its crude oil exports increased in early March by 2% to 1.46 million b/d as weather improved at its Basra export terminal in the south. Iraqi officials said production problems had reduced output of its northern oil fields to 245,000 b/d from 400,000 b/d in February. Its northern production was piped to Iraqi refineries or put in storage, with no exports through Iraq's northern pipeline to the export terminal in Ceyhan, Turkey.
Deutsche Bank analysts expressed concern about OPEC's ability to maintain its crude output "at the implied required levels for the second half of 2006 in view of serious production issues in Iraq, Nigeria, Venezuela, and Iran." They said, "We suspect that actual spare capacity in OPEC is not growing much."
IEA lowered its assessment of North American demand by 100,000 b/d because of reduced use of fuel oil as the result of switching dual-fuel boilers to less expensive natural gas. It cut its non-OPEC global crude oil supply growth outlook by 155,000 b/d, primarily because of weaker former Soviet Union and African levels. IEA now calls for a 1.2 million b/d increase in non-OPEC supply, driven by production growth in the former Soviet Union, Africa, and Latin America. "This is well above the 850,000 b/d 5-year historical average and could be further reduced later in the year, in our view," said Rousseau.
"Markets and OPEC ministers are reflecting some unease over the direction of the fundamentals, but geopolitical concerns continue to dominate oil trading activity," said Deutsche Bank analysts. They said: "The biggest threat to growth in global oil demand is likely to come in the form of a slowdown in [gross domestic product] either from the slow rise in interest rates as central bankers tackle inflation, a quick shot to consumer confidence that would accompany fear of supply interruption (a confrontation with Iran?), or the impact of an unpredictable avian flu pandemic. Another possible source of demand pressure, however, could come in the form of the relentless impact of prices and policy decisions on consumer demand."
Iran offered to talk to US officials about its proposed nuclear program, apparently easing fears of a growing diplomatic crisis. The Bush administration said Iran's nuclear ambitions are the biggest challenge to the US and has not ruled out the preemptive use of force.
(Online Mar. 20, 2006; author's e-mail: email@example.com)