PARIS, 14 March 2007 — The International Energy Agency warned yesterday that global oil inventories could show the biggest fall for more than a decade in the first quarter, raising concern about renewed price tensions. “Preliminary data suggest that OECD stocks have fallen by over 1.26 mbpd (million barrels per day) over the first two months of the year, and could be heading for the largest quarter stock draw for over ten years,” said the IEA, an energy watchdog for industrialized countries.
Data for January and February show “reason to be concerned” and recent declines in crude as well as gasoline and distillate stocks bring inventories to “levels that were associated with higher and sharply rising prices last summer.”
The price of crude oil hit a record $78 per barrel in mid-2006, but has since fallen back to about $60. “Tighter OPEC supply and colder temperatures in the US in February served to perpetuate the recent downward trend in OECD stocks,” the IEA explained in its monthly oil market report. The OECD area covers 30 of the world’s most industrialized countries, including North America, Western Europe, Japan, Australia and South Korea. Oil traders respond to changes in risk, with inventories and spare capacity in the production system seen as the two most important safety cushions for the market.
Inventories allow for a sudden shortfall in supplies to be plugged, while spare capacity enables a group of producers to increase their output to compensate for disruption in the oil exports of a peer. A fall in stocks will therefore cause tension and tends to lead to rising prices.
World crude oil prices rebounded yesterday after the warning by the IEA. The price of Brent North Sea crude for April delivery added 69 cents to $61.43 per barrel in electronic trading yesterday. New York’s main oil futures contract, light sweet crude for delivery in April, gained 54 cents to $59.45 per barrel in electronic deals before the official opening of the US market.