OGJ Economics Editor
HOUSTON, May 14 -- Oil market fundamentals point to significant future tightening, with 45 million bbl of crude already taken out of the market, the International Energy Agency, Paris, reported Monday.
That loss resulted from Iraq's export suspension and the ongoing conflict between the Israelis and Palestinians, said IEA officials. These factors offset weak product demand and comfortable inventories.
While IEA reduced its projected first quarter 2002 demand level, it raised its estimates of third and fourth quarter demand and lowered its estimates of supply from Organization for Economic Cooperation and Development countries.
Russian oil production for April was estimated to have been nearly unchanged from March level of 7.16 million b/d, a record high in the post-Soviet era. Meanwhile, Iraq's 30-day suspension of crude exports pulled down worldwide oil supply by 1.4 million b/d to 74.5 million b/d in April as output by the remaining 10 members of the Organization of Petroleum Exporting Countries was unchanged, according to IEA.
During the first quarter of 2002, OPEC production was down 3.1 million b/d from a year earlier. Although non-OPEC production was up 1.5 million b/d for the same period, a large amount of crude was removed from the market. During that quarter, global oil demand contracted 900,000 b/d.
A small industry stockdraw—just 2 million b/d—in the first quarter left OECD industry oil stocks at the high end of their 5-year range, but if the global economy recovers as much as is expected this year, the market will quickly tighten.
Stocks normally rise during the second and third quarters. However, should current producer output targets remain in effect on top of the recently lost Iraqi supply, IEA reckons that OECD industry stocks will trend toward the bottom of their 5-year average by the end of the third quarter. An extension of current production cuts into the fourth quarter would further erode stocks.
IEA warned that a repeat of the events of 1999, when OECD industry stocks plunged 230 million bbl in less than 2 quarters, is a real possibility. "In 1999, markets demonstrated that they can turn quickly, contributing to extreme price volatility and instability. Producers will need to make timely decisions to meet market demands," officials said.
The agency estimated that average 2002 global oil product demand will be 76.44 million b/d. This is up 20,000 b/d from previous estimates, although a 30,000 b/d simultaneous upward revision to 2001 demand slightly lowers demand growth to 420,000 b/d for this year.
Oil demand and the economy seem to be moving in opposite directions. While US GDP increased 5.8% in the first quarter, preliminary estimates indicate that oil demand contracted 3.2% as warm weather weakened March deliveries. In France, consumer spending increased in March at its strongest rate in 8 months, while oil demand plummeted.
IEA noted that is common for oil demand to lag the economy by several months when the latter experiences rapid acceleration. Most indicators point to a slow recovery in oil demand this year. "Even US GDP appears to have expanded at a subdued pace if government and military spending and the rebuilding of inventories depleted during last year's recession are stripped out," EIA officials said.
Contact Marilyn Radler at [email protected]