LONDON (Reuters) - Iraq’s oil growth targets look increasingly at risk, the International Energy Agency said, as threats to supplies from political instability and violence grow just as demand is picking up due to a stronger global economy.
Iraq is the second-largest producer in OPEC and its northern exports have been offline since March. OPEC output has also been hit by unrest in Libya, sanctions on Iran and oil theft in Nigeria.
“Within OPEC, Iraq remains the main source of most of the expected capacity growth, but this expansion looks increasingly at risk,” Maria van der Hoeven, the IEA’s executive director, wrote in the report’s Foreword.
Still, the adviser to the United States and other industrialised countries also said in its Medium Term Oil Market Report on Tuesday that global growth in oil demand may start to slow down by the end of this decade due partly to high prices, and shale oil would start to spread outside the United States.
Oil prices jumped to almost $115 a barrel last week, the highest since September, as advances by Sunni insurgents in Iraq raised concern that more of the country’s supply could be disrupted.
At present, the agency expects OPEC to increase its production capacity by 2.08 million barrels per day (bpd) - to 37.06 million bpd by 2019. More than 60 percent of the growth is expected to come from Iraq.
The report contrasts with the IEA’s previous medium-term update in May 2013, which forecast U.S. shale oil would help meet most of the world’s new oil demand, leaving little room for OPEC to lift output without risking lower prices.
Now, the IEA expects world oil demand in 2014 to average 92.76 million bpd, 960,000 bpd more than expected in May 2013. Global demand growth will accelerate to 1.42 million bpd next year from 1.32 million bpd in 2014, it said.
The Organization of the Petroleum Exporting Countries will need to pump more oil than expected in the previous medium-term report, the IEA said, raising its forecast of demand for OPEC crude plus inventories by 900,000 bpd to 30.1 million bpd in 2014.
“Oil markets are in many ways tighter today than they were at the onset of the U.S. shale and tight oil boom, and considerably tighter than they were a year ago,” the IEA said.
The Paris-based IEA also coordinates the use of strategic oil reserves held by its members in case of supply shocks.
Van der Hoeven said on a conference call the latest violence in Iraq had not cut its supply, although the agency was keeping an eye on developments there.
“We will continue to monitor the situation closely and keep in close touch with our members, ready to respond in the event of a major disruption in physical supplies of oil,” she said. It last tapped the stocks in 2011 during the Libyan war.
In the report, the IEA cut its estimate of Iraq’s oil production capacity growth by 470,000 bpd, and now expects capacity to reach 4.54 million bpd by 2019 - much lower than the Iraqi government’s plan of up to 9 million bpd by 2020.
While highlighting production risks in OPEC, the IEA also said shale oil would make an impact outside the United States before the end of the decade, with 650,000 bpd of supplies coming by 2019 from Canada, Russia and Argentina.
But the IEA also questioned whether other countries looking to develop shale had the combination of above- and below-ground advantages that enabled the U.S. supply boom, and said that U.S. output growth would tail off.
Underlining the steady shift of oil demand growth to Asia, the IEA said China would overtake the United States as the world’s top crude oil importer as soon as this year.
After 2015, the IEA sees a slowdown in global oil demand growth further down the road, citing environmental concerns and cheaper alternatives to oil.
“While ‘peak demand’ for oil, other than in mature economies, may still be many years away, peak oil demand growth for the market as a whole is already in sight,” it said.
Editing by William Hardy