The International Energy Agency has cut its outlook for 2008 oil product demand to an average 86.8 million b/d, a reduction of 80,000 b/d from the agency’s previous forecast. This puts worldwide product demand growth for this year at 800,000 b/d.
The new estimate follows the reduction of price subsidies in several countries, including India, Indonesia, Malaysia, Sri Lanka, and Taiwan.
In its latest monthly Oil Market Report, IEA says that speculators have been involved in crude’s price jump to near $140/bbl, but this trading activity is probably better defined as being risk management rather than speculation. Also an Israeli minister’s recent comments about Iran’s nuclear enrichment program have put Middle East politics back into play as an oil-price driver.
“Although discussions will focus on whether or not a supply disruption is a likely outcome, from a market perspective, there is also another supply response to consider: an IEA strategic stock release,” the report said. “Given that OPEC countries are running close to flat out, the market can take comfort that the IEA is watching developments very closely and is prepared to act quickly if necessary,” EIA said.
“But $140/bbl is not just about geopolitical risks—the supply situation remains tight,” IEA said, adding that these abnormally high prices are largely explained by fundamentals. Supply growth so far this year has been poor, and higher prices are needed to choke demand to balance the market.
Oil stocks in countries of the Organization for Economic Cooperation and Development slid 8.1 million bbl in April, a month in which inventories typically build.
The Paris-based agency’s figures show that global oil supply rebounded 490,000 b/d in May to average 86.6 million b/d, lifted by higher OPEC crude supply. The rise comes after extensive downward revisions to first-quarter 2008 non-OPEC production and projected lower biofuels and NGL output for the rest of this year, though. Despite this, IEA forecasts a recovery in non-OPEC output for this year’s second half.
OPEC’s higher output and field commissioning delays have pushed effective spare capacity below 2 million b/d for the first time since third quarter 2006, according to IEA, as current installed OPEC crude production capacity is assessed at 34.97 million b/d. The call on OPEC crude and stock change in 2008 has been revised up 300,000 b/d to 31.6 million b/d in this report.
