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The oil market is likely to “moderate in the short term” as global demand growth continues to ease, the International Energy Agency, the western countries’ oil watchdog, said.
The closely watched IEA’s monthly oil market report, released on Tuesday, suggests that the world’s economic slowdown is steadily bringing demand growth back in line with supply.
The IEA has knocked 200,000 b/d off its demand estimate for this year, bringing it to 89.3m b/d.
As for next year, the agency has revised its prediction downwards by 400,000 b/d to 90.7m b/d. This assumes total world economic growth of 4 per cent this year and next.
But the agency cautioned that “the potential for slightly easier market fundamentals in the months ahead needs to be viewed against a backdrop of an actual and pronounced tightening in the market”.
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Oil prices were slightly up after the release. ICE October Brent rose 13 cents to $112.39 a barrel while Nymex October West Texas Intermediate rose 42 cents to $88.61 a barrel. Brent crude has traded whitin a $100-$125 a barrel band since February, when the civil war in Libya started.
The agency said that “significant economic threats” serve to “skew the overall demand side risk to the downside”. The report adds that “consumer confidence has plummeted” in the developed world with “manufacturing indicators easing globally”.The IEA said that if actual economic expansion turns out to be one-third below this estimate, total demand in 2011 would be lowered by another 300,000 b/d and by a hefty 1m b/d next year. “This latter case is not our ‘most likely’ prognosis, but the financial and economic headwinds are nonetheless gathering momentum.”
On the supply picture, the IEA estimated that total production by the Opec cartel has expanded by a modest 170,000 b/d to reach 30.26m b/d in August.
The easing of demand growth means that the “call” on Opec’s crude is likely to be in balance with the cartel’s output by the fourth quarter of this year.
The IEA said that demand for Opec oil will average between 30m and 30.5m b/d, a level that stands “near recent Opec output levels”. The reports added: “That suggests that the recent spell of market tightening could moderate in the short term, assuming that recent supply disruptions also recede.”
On the Libyan situation, the IEA suggests that the country will produce 300,000 b/d in the fourth quarter, but adds that the “road back to full operational recovery is likely to be a long and difficult one”.
Using “cautious” assumptions, the IEA believes that Libyan output will reach 1.1m b/d by the final quarter of next year, compared with its prewar level of 1.6m b/d, of which 1.2m b/d were exported to Europe. The report suggests that a “two to three year time frame” will be needed before Libya’s production returns to this level.
