LONDON OPEC followed this week's failure to reach an output deal with a forecast world oil supplies would begin to fall short later this year, draining inventories just when demand is expected to hit a seasonal peak.
In its monthly report published Friday, OPEC said world demand for its oil would average 30.7 million barrels per day (bpd) in the second half of the year, much higher than the 28.97 million bpd the 12-member group produced in May.
The figures suggest the world will be undersupplied by 1.73 million bpd -- enough to meet demand in an economy the size of France -- if the Organization of the Petroleum Exporting Countries does not increase supplies.
"Looking to the remainder of this year, the expected supply/demand balance indicates a tightening market," OPEC's report said. "As a result, global inventories could continue to decline as the market enters a period of high seasonal demand."
OPEC, source of more than a third of the world's oil, met in Vienna for the first time this year on Wednesday and for the first time in around a decade failed to make a decision on output policy.
The group's Secretary General Abdullah al-Badri said after the meeting members had different numbers and were unable to agree on any need for more oil. Analysts said political tension also played a part in the split.
Oil prices fell on Friday as top OPEC producer Saudi Arabia began offering more oil to customers, easing worries about supply. Brent crude was down more than 50 cents and trading below $119 a barrel.
IEA SEES SMALLER SUPPLY GAP
The supply gap seen by OPEC's report is even larger than that of the International Energy Agency, which advises consuming countries and had lobbied OPEC to raise its oil output before its meeting.
According to the IEA, demand for OPEC crude will average 29.95 million bpd in the second half of the year, or 1.2 million bpd more than April production of 28.75 million bpd.
Analysts said OPEC's report mattered little for oil prices and a bigger focus would be the IEA's latest forecasts scheduled for release on Thursday.
"It's absolutely market neutral," said Olivier Jakob of Petromatrix. "What's going to matter more is the IEA report next week when we will be able to see if there are any more changes."
OPEC said its oil output in May rose by about 171,000 bpd to 28.97 million bpd as extra supplies from Saudi Arabia, Nigeria and Iraq offset a further decline from Libya. The report pegged Saudi output at 8.86 million bpd in May.
Saudi newspaper al-Hayat reported on Friday Riyadh would boost supplies to 10 million bpd in July and oil traders said the kingdom was offering more to customers in Asia, which is driving the increase in global demand.
The world is expected to use 1.38 million bpd of oil more this year than in 2010, OPEC's report said, a forecast little changed from last month.
(Additional reporting by Barbara Lewis)