Oil market tight despite slowdown, IEA says
LONDON (Reuters) - World oil demand will be a bit lower than expected this year and next as economic slowdown and high prices curb consumption but the oil market is strong and supply remains tight, the International Energy Agency (IEA) said on Thursday.
The agency, which advises more than two dozen wealthy industrialized countries on energy policy, said demand for oil from the Organization of the Petroleum Exporting Countries (OPEC) was running ahead of output.
And while some oil production from Libya had resumed earlier than expected following the overthrow of former dictator Muammar Gaddafi, the IEA said it would take a long time to return to pre-conflict levels of oil output in the North African producer.
Oil supply and demand fundamentals were underpinning "stubbornly high prices," the IEA said in its monthly Oil Market Report, adding political turbulence was also a risk for oil.
"The Arab winter could well prove as turbulent as the Arab spring," it said. "The Iranian nuclear issue is again rising among market concerns."
The IEA said high oil prices were helping restrain fuel use in the United States, China and Japan and this trend could intensify if economic activity slowed.
"The demand picture could sour significantly should economic prospects falter," the IEA said.
"RELATIVELY ROBUST FORECAST"
The IEA cut its forecast for world oil demand this year by 70,000 barrels per day (bpd) to 89.16 million bpd, and reduced its 2012 demand projection by 20,000 bpd to 90.47 million bpd.
This brought the agency's forecast for global oil demand growth in 2011 down by 90,000 bpd, but increased its estimate of expected 2012 oil demand growth by 50,000 bpd.
Oil prices have been historically strong this year, with North Sea Brent averaging more than $100 per barrel, and this has helped keep a lid on consumption in many major economies.
Brent crude oil futures were trading around $113 per barrel at 1600 GMT on Thursday, up from below $90 a year ago.
Despite concerns over the outlook for demand, the IEA suggested the oil market could stay strong for some time.
OPEC oil output rose 95,000 bpd in October to 30.01 million bpd, the IEA said, with more oil from Saudi Arabia, Angola and Libya. But demand for OPEC oil and stocks was projected at around 30.5 million bpd this year, slipping only slightly to about 30.4 million bpd in 2012 as non-OPEC supplies increased.
Harry Tchilinguirian, head of commodity market strategy at BNP Paribas, said the IEA report suggested the oil market could strengthen if the northern hemisphere winter was severe.
"It is a relatively robust forecast," Tchilinguirian said.
"The fundamental position at the end of the year could be much tighter. From a fundamental perspective, this suggests possible support for prices this winter."
Libyan oil production had so far recovered much faster than expected and was now around 530,000 bpd, the IEA said, adding that damage to infrastructure had been less than feared.
But it had a much more conservative view of the pace of recovery of the rest of the country's production capacity.
It projected Libyan oil output would reach 1.17 million bpd by the fourth quarter of 2012 -- 90,000 bpd more than it previously forecast, but still well below government estimates.
Acting Prime Minister Ali Tarhouni said on Thursday Libyan output would comfortably exceed 700,000 bpd by the end of this year and reach full pre-conflict production levels of around of 1.6 million bpd by June of next year.
The agency said heavy damage to oil export terminals and other oil facilities would hold up recovery and many of the necessary repairs would have to be undertaken by foreign specialists working for the international oil companies.
"The bulk of the restoration of production has been carried by local petroleum industry staff, with much of the foreign workforce still outside the country," it said.
The IEA said industry stocks of oil in the major industrialized countries had fallen by 11.8 million barrels in September to the equivalent of 57.9 days of future demand, but it noted that these stocks were still around 1.5 days above the five-year average.
(Additional reporting by Angela Bulgari; editing by Anthony Barker)
We are living longer but not creating financial plans to keep pace. Advisers give tips on how to make sure you don’t outlive your money. Video