PARIS, 11 December 2004 — The International Energy Agency trimmed its forecast for growth in global oil demand next year but warned yesterday that prices were likely to remain high and dismissed producer fears of a sharp fall as “overstated.”
The IEA’s monthly market report appeared as ministers from the Organization of Petroleum Exporting Countries, meeting in Cairo, approved a cut in production to prevent further price erosion.
But the IEA insisted that while prices may have eased a bit of late, “the market is not out of the woods yet.” “Producer concern over a precipitous fall is prices is somewhat overstated,” the report said.
“Plus 40-dollar oil is still high and capacity constraints, geopolitical uncertainty and demand growth will not disappear overnight and will continue to provide price support over the medium term.” Under such circumstances, it said “higher inventory levels” are the only means to stabilize prices in the short term. But that message has apparently not gotten through to OPEC. “The oil market has begun to experience instability in the price of oil, which has begun to slide downward because of supply outstripping demand and a rebuilding of stocks,” Saudi Minister of Petroleum and Mineral Resources Ali Al-Naimi said in an interview published in the Al-Hayat newspaper yesterday.
“Our concern is that the rebuilding of stocks has reached levels that will negatively influence prices. That is why there must be preventative measures to reabsorb the surplus oil supply estimated today at about one million barrels.” Oil prices were at $42.53 a barrel in New York late Thursday, down $13.14 from their peak on Oct. 25.
The IEA maintained its 2004 projection for world oil demand unchanged at 82.4 million barrels a day, noting that “record high prices so far appear to have had limited impact on global demand.” But for next year its previously stated forecast for growth in demand was cut back by 80,000 barrels a day to 1.4 million barrels a day.
The agency cautioned, however, that its 2005 projection carried “significant risk,” referring to China as “the main wildcard.” “Barring any hard landing (to China’s roaring economic momentum), we expect continued Chinese economic expansion to keep fueling steep oil demand growth through 2005 and beyond,” the IEA said.
It found that growth in Chinese demand for oil slowed 8.6 percent in the third quarter to 6.25 million barrels a day after increases of 19 and 25 percent in the first and second quarters of the year.
Demand growth was expected to remain at about eight percent in the fourth quarter.
On the supply side, the IEA said OPEC in November provided the market with 29.4 million barrels of oil a day, down 500,000 barrels a day from October and signaling an end to six straight months of rising OPEC production. November’s decline reflected developments in Iraq, where output declined by 430 thousand barrels a day to 1.79 million barrels. The study determined that OPEC’s spare capacity — excluding Iraq, Nigeria, Venezuela and Indonesia — now comes to about one million barrels day.
The IEA finally foresees a slowdown in oil output from Russia next year, when production is projected to average 9.64 million barrels a day, down 30,000 barrels a day from the October estimate.