LONDON—The International Energy Agency Wednesday issued a firm rebuttal to critics of its decision to release 60 million barrels of emergency oil stocks, saying the move is having the intended effect and pointing to a supply-demand balance that is growing steadily tighter.
The IEA, which represents major energy-consuming countries, hit back at some analysts' "blinkered focus" on the price of oil, which has rebounded above its level prior to the stock release. More important is that the market is now more flexible and the price of light, sweet crude, relative to heavier grades, has fallen after increasing sharply following the outbreak of the Libyan civil war, it said.
The IEA also warned in its monthly report that, despite an increase in production from the Organization of Petroleum Exporting Countries in June of 800,000 barrels a day, the need for additional oil supplies this quarter from the group has barely diminished, due to increases in demand and lower-than-expected production elsewhere.
The gap between actual OPEC output and what the world needs the group to produce in the third quarter to meet seasonal demand increases was 1.3 million barrels a day in June, versus 1.5 million barrels a day in May, the IEA said. A significant part of this supply gap will be filled by the emergency stock release during July and August, avoiding a "damaging and sustained surge in international oil prices," it said.
Take-up of the emergency stock release has been higher in both the U.S. and Europe than the last time this action was taken after Hurricane Katrina in 2005, the IEA said.
OPEC production is expected to continue growing in July, although a significant portion of this extra oil may be used to satisfy rising domestic demand, said David Fyfe, head of the agency's Oil Industry and Markets Division. Libyan exports aren't expected to begin to grow until the second half of next year, the report said.
The IEA raised its 2011 demand forecast by 200,000 barrels a day to 1.3 million barrels a day. In contrast, OPEC Tuesday trimmed its forecast to 1.36 million barrels a day and warned demand could fall by another 200,000 barrels a day due to economic weakness.
The IEA expects oil demand to grow by 1.5 million barrels a day next year, as global economic growth accelerates. OPEC expects 2012 demand to grow by just 1.3 million barrels a day amid a more uncertain economy.
Write to James Herron at james.herron@dowjones.com
