VIENNA (Reuters) - Strict adherence with OPEC supply cuts already in place would shrink oil stocks in developed nations even though demand is expected to contract further, the International Energy Agency said on Friday.
The implication is the Organization of the Petroleum Exporting Countries does not need to lower output targets again when it meets in Vienna on Sunday.
The Paris-based IEA assessed at 80 percent the level of OPEC compliance with supply restraints of 4.2 million barrels per day (bpd) agreed since last September. Its estimate is in line with those made by other observers.
On the basis of the IEA’s current market snapshot, full compliance would take OPEC output a hefty 1.6 million bpd below 2009 demand for the producer group’s oil, the IEA, which represents consumer nations, said in a monthly report.
“Our view is that OPEC’s current targets, if they comply with them fully, will begin to tighten the market quite sharply from late in the second quarter,” said David Fyfe, head of the oil industry and markets division at the IEA.
He voiced concern more cuts now could damage further a broken global economy by driving up oil prices, which traded above $47 a barrel on Friday.
They have recovered from a low of $32.40 hit in December.
“Certainly our view is that they don’t really need to do very much more in terms of new targets. We’re just cautioning that any move to go too far too quickly could also risk a surge in prices.”
Several officials from the International Monetary Fund have hinted another sharp downward revision to global economic growth is likely, which would also imply lower fuel demand, but the IEA said it expected inventories to fall even with “a more severe demand scenario.”
PRODUCTION FALLING IN ANY CASE?
The IEA estimated global oil supply in February at 83.9 million bpd, while OPEC supply stood at 28 million bpd, down 1.1 million bpd from January.
In any case, OPEC output would probably decline in March and April, the IEA said, citing production problems in OPEC members Nigeria, where militants have disrupted supply, and Iraq, which has technical issues.
Non-OPEC supply growth for 2009 was revised down by 380,000 bpd to zero, the IEA said, citing production problems in Azerbaijan.
Global oil demand will contract this year by 1.25 million bpd, taking it down to 84.4 million bpd, the IEA’s monthly report said.
The forecast represented a downward revision compared with the previous report, which predicted fuel consumption would shrink by 980,000 bpd as a steep drop in economic growth eroded energy use.
A further decline this year would mark the first two-year demand contraction since the 1980s.
At the same time, inventories have swollen and days of forward cover -- a measure closely watched by OPEC -- have stretched to the equivalent of 58.7 days, much more than the 52 days the producer group considers comfortable.
Additional reporting by Alex Lawler; Editing by William Hardy and Keiron Henderson
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