The International Energy Agency recently raised its projected growth of world demand for oil products by 160,000 b/d in the second quarter, with expected total demand growth "broadly unchanged" at 1.24 million b/d for 2006 as a whole.
IEA reported global oil supplies rose by 445,000 b/d to 85 million b/d in May, fuelled by increased production from the Organization of Petroleum Exporting Countries (up by 215,000 b/d to 29.8 million b/d in May), a lull in North Sea maintenance, and recovering US Gulf of Mexico production after the damage inflicted last year by Hurricanes Katrina and Rita. "A booming global economy remains supportive, but high prices are weighing on consumption," IEA said.
Earlier, BP PLC Chief Executive John Browne said he expected crude prices to drop to $40/bbl within 5 years and plunge as low as $25/bbl in a decade. Most industry analysts disagree that such a steep fall in energy prices is likely, and the New York Mercantile Exchange on June 16 had contracts for benchmark US light, sweet crudes trading above $64/bbl through December 2012.
Crude inventories among member countries of the Organization for Economic Cooperation and Development increased by 17 million bbl in April to 2.6 billion bblthe highest level in 20 years, said IEAas seasonal maintenance reduced refinery runs. IEA raised its second quarter growth projection because of recent strength in the Chinese and US economies, partly offset by weakness in OECD Europe and Asia. However, it marginally lowered its projections for global oil product demand growth for all of 2006 to 1.24 million b/d from 1.25 million b/d previously.
IEA said, "Chinese apparent demand (refinery production plus net product imports) grew by an unexpectedly robust 9.6% year-on-year in April. Gasoline demand was very strong, surging by 19.7%, which is in line with strong vehicle sales." Recent government price increases of 9.6% for gasoline and 11.1% for diesel is expected to reduce pressure on Chinese refiners, who have suffered substantial losses under artificially low prices.
"The retail price increase may add strength to apparent demand in the near term, as refiners are more willing to supply the domestic market at the margin," IEA reported. "In the longer term, however, the increase is likely to dampen demand growth to some extent. China's second quarter demand is projected to grow by 8.6% before slowing to a still robust 5.9% over the second half of the year. Transport fuels will lead the way, growing by 7-9% over the remainder of 2006."
US demand was revised upwards by 170,000 b/d in the second quarter. "After posting year-on-year declines in 6 of 7 months since August 2005, preliminary indications are that demand grew by a modest 0.8% in April and surged by 3.6% in May," said IEA. Robust economic growth should help support US oil demand through 2006, but high oil product prices and comparatively low natural gas prices, which encourages switching to gas from oil among utilities and commercial users, should continue to hamper demand growth.
"In all, projected US demand growth remains broadly unchanged at 0.9%. This is well below what might typically be expected given projected economic growth of approximately 3.5-4% in 2006," said IEA analysts.
"Non-OECD oil demand growth clearly dominates the global picture. While its share of global demand is only 41%, non-OECD demand will account for close to 85% of world growth in 2005-06," IEA reported.
IEA expects OECD demand to contract by 50,000 b/d from year-ago levels in the second quarter. "In spite of recent resilience in US demand, consumption growth remains weak in other major economies," said IEA analysts. This marked the third consecutive quarterly decline in OECD demand compared with the previous year's levels. However, IEA expects third and fourth quarter demand growth to rebound compared with the hurricane-affected 2005 baseline.
World oil supply in May was estimated up by 445,000 to 85 million b/d from a downward-adjusted April base in the latest IEA report.
That included increases of 275,000 b/d to 29.8 million b/d in May from OPEC and 210,000 b/d from OECD, due in part to a pause in North Sea maintenance. "Among other non-OPEC producers, increases from Asia and Latin America were offset by declines from Africa and the Middle East," IEA said.
Non-OPEC production was revised up by 40,000 b/d for 2005, "largely due to higher baseline data for Oman." However, this year's non-OPEC total supply of 51.2 million b/d was been revised down by 55,000 b/d.
(Online June 19, 2006; author's e-mail: email@example.com)