Brucelee
07-01-2008, 14:41
IEA Sees World Oil Market Tightening
By NATALIE OBIKO PEARSON
July 1, 2008 7:35 a.m.
LONDON -- The world will find itself increasingly pressed over the next five years to produce enough oil to meet surging consumption, the Paris-based International Energy Agency warned Tuesday.
In its annual medium-term outlook, which forecasts conditions through 2013, the agency said it sees world oil supplies tightening more than it previously expected due to sluggish growth even though higher oil prices and weaker economic growth are set to trim demand.
U.S. oil futures set a new intraday high of $143.67 a barrel early Monday and have doubled since the IEA's last such report in July last year.
"There is no clear sign of a recovery in crude oil [producing] capacity over the medium term," the energy watchdog said. "Despite a considerable downward revision to our global oil-demand forecast ... structural-demand growth in developing countries and ongoing supply constraints continue to paint a tight market picture."
Current oil prices are an accurate reflection of those gloomy prospects, said the IEA. "Everyone wants a simplistic explanation for high prices. The reality is that there are a multitude of interactions" taking place, some of them involving structural changes in the world economy that have been building for many years, the report said in a new chapter dedicated solely to explaining the rise in prices.
Primary among them is that oil demand is growing robustly in developing nations in Asia, the Middle East and Latin America relative to sluggish supply growth, it said. "There are significant downward revisions for both non-OPEC supplies and OPEC capacity estimates from last year's Medium-Term Oil Market Report," because project delays and decline rates at mature oil fields are expected to hinder growth for the foreseeable future, the agency said.
Global oil-supply capacity is projected to rise to 96.2 million barrels a day in 2013 from 90.4 million barrels a day this year, including crude production capacity from the Organization of Petroleum Exporting Countries, OPEC natural gas liquids and non-OPEC production. However, most of that growth will come early and sharply taper off: between 2011 and 2013, capacity will grow by less than one million barrels a day annually, it said.
Non-OPEC supply growth is expected to fall to "minimal levels" by 2013. OPEC crude supply is expected to grow annually by 2.5 million barrels a day to reach 37.9 million barrels a day by 2013 -- one million barrels a day lower than last year's forecast.
OPEC's usable spare capacity will rise to as high as 4.3 million barrels a day in 2010 but then fall to a one million barrels a day by 2013, the IEA said, from 1.95 million currently. That means that by 2013, if OPEC finds extra oil is needed to offset a disruption or otherwise balance the market, it will only be able to pump an additional amount equivalent to just over 1% of world consumption -- a level the report described as "negligible."
"What we're seeing here is an absence of obvious reaction to price signals," said Lawrence Eagles, editor of the IEA report,[B] noting that it takes time for the impact of prices to filter through, especially on the supply side, where "things move much, much more slowly."[/B]
The IEA also cut its demand projections to account for the impact that high oil prices are having on consumption habits: global oil demand is forecast to expand on average 1.5 million barrels a day, or 1.6%, to reach 94.1 million barrels a day by 2013. In comparison, last year's report forecast annual demand growth of 2.2% a year.
That was based on a robust annual global economic growth forecast of 4.4% during the period because developing countries are expected to be more resilient in the face of a U.S. slowdown, which will help sustain demand for crude and other oil products such as diesel, the agency said. "By the end of the forecast period, global oil demand will be almost evenly split between OECD and non-OECD countries," it said. OECD refers to the Organization for Economic Cooperation and Development, which represents the world most industrialized nations.
[B]
The bulk of oil-demand growth will come from transportation fuels, the IEA said. Led by China and India, the world's total vehicle fleet may number 1.2 billion vehicles by 2013, up from about 890 million in 2005, it added.[/B]
In contrast, demand growth will continue contracting in developed economies. "Given high oil prices, expected to prevail, and the marked U.S. economic slowdown, which is seen lasting at least until 2010[B], the U.S. is no longer seen as supporting oil [product] demand growth," in industrialized nations, the IEA said.[/B]
As for sky-high oil prices, the IEA said that soaring demand for distillate fuels -- such as diesel, jet fuel and kerosene -- and a lack of sufficient refining capacity has played a key role in lifting crude oil prices. [B]"[Tightness] in the distillate market is arguably the single biggest cause of the current run up in prices," the report said. Natural gas shortages, Chinese diesel shortages and tightened European regulations on sulfur levels in diesel have all contributed to the soaring demand for middle distillates, it said.[/B]
"While crude oil prices should be determined by the supply and demand for crude oil, if strong demand or tight refining capacity leads to higher product prices overall, refiners would be prepared to pay a higher price for crude oil," the report said.
The IEA also said in its outlook that more than 3.5 million barrels a day of new production is needed each year just to hold world production steady. The global net decline rate of oil production was raised to 5.2% a year from 4% in the previous report.
The IEA sees oil projects on average being delayed by up to 12 months with costs doubling. As a result, the forecast for total OPEC and non-OPEC capacity in 2012 was cut by 2.7 million barrels a day.
The IEA expects biofuels to account for 50% of non-OPEC supply growth by 2013. But they will remain a small proportion of the total oil balance. Meanwhile, ethanol and biodiesel supply growth in the U.S. and Europe have met the equivalent of some one million barrels a day of crude oil output since 2005. However, the agency said it remains cautious about the future prospects of biofuels amid weak profit margins and increasing doubts about their environmental benefits and efficiency.
World refinery capacity is projected to increase by 8.8 million barrels a day during the period -- greater than the projected increase in oil production. However, the IEA said rising costs and other pressures could change that outlook, which could have a significant impact on the availability of oil products and crude
By NATALIE OBIKO PEARSON
July 1, 2008 7:35 a.m.
LONDON -- The world will find itself increasingly pressed over the next five years to produce enough oil to meet surging consumption, the Paris-based International Energy Agency warned Tuesday.
In its annual medium-term outlook, which forecasts conditions through 2013, the agency said it sees world oil supplies tightening more than it previously expected due to sluggish growth even though higher oil prices and weaker economic growth are set to trim demand.
U.S. oil futures set a new intraday high of $143.67 a barrel early Monday and have doubled since the IEA's last such report in July last year.
"There is no clear sign of a recovery in crude oil [producing] capacity over the medium term," the energy watchdog said. "Despite a considerable downward revision to our global oil-demand forecast ... structural-demand growth in developing countries and ongoing supply constraints continue to paint a tight market picture."
Current oil prices are an accurate reflection of those gloomy prospects, said the IEA. "Everyone wants a simplistic explanation for high prices. The reality is that there are a multitude of interactions" taking place, some of them involving structural changes in the world economy that have been building for many years, the report said in a new chapter dedicated solely to explaining the rise in prices.
Primary among them is that oil demand is growing robustly in developing nations in Asia, the Middle East and Latin America relative to sluggish supply growth, it said. "There are significant downward revisions for both non-OPEC supplies and OPEC capacity estimates from last year's Medium-Term Oil Market Report," because project delays and decline rates at mature oil fields are expected to hinder growth for the foreseeable future, the agency said.
Global oil-supply capacity is projected to rise to 96.2 million barrels a day in 2013 from 90.4 million barrels a day this year, including crude production capacity from the Organization of Petroleum Exporting Countries, OPEC natural gas liquids and non-OPEC production. However, most of that growth will come early and sharply taper off: between 2011 and 2013, capacity will grow by less than one million barrels a day annually, it said.
Non-OPEC supply growth is expected to fall to "minimal levels" by 2013. OPEC crude supply is expected to grow annually by 2.5 million barrels a day to reach 37.9 million barrels a day by 2013 -- one million barrels a day lower than last year's forecast.
OPEC's usable spare capacity will rise to as high as 4.3 million barrels a day in 2010 but then fall to a one million barrels a day by 2013, the IEA said, from 1.95 million currently. That means that by 2013, if OPEC finds extra oil is needed to offset a disruption or otherwise balance the market, it will only be able to pump an additional amount equivalent to just over 1% of world consumption -- a level the report described as "negligible."
"What we're seeing here is an absence of obvious reaction to price signals," said Lawrence Eagles, editor of the IEA report,[B] noting that it takes time for the impact of prices to filter through, especially on the supply side, where "things move much, much more slowly."[/B]
The IEA also cut its demand projections to account for the impact that high oil prices are having on consumption habits: global oil demand is forecast to expand on average 1.5 million barrels a day, or 1.6%, to reach 94.1 million barrels a day by 2013. In comparison, last year's report forecast annual demand growth of 2.2% a year.
That was based on a robust annual global economic growth forecast of 4.4% during the period because developing countries are expected to be more resilient in the face of a U.S. slowdown, which will help sustain demand for crude and other oil products such as diesel, the agency said. "By the end of the forecast period, global oil demand will be almost evenly split between OECD and non-OECD countries," it said. OECD refers to the Organization for Economic Cooperation and Development, which represents the world most industrialized nations.
[B]
The bulk of oil-demand growth will come from transportation fuels, the IEA said. Led by China and India, the world's total vehicle fleet may number 1.2 billion vehicles by 2013, up from about 890 million in 2005, it added.[/B]
In contrast, demand growth will continue contracting in developed economies. "Given high oil prices, expected to prevail, and the marked U.S. economic slowdown, which is seen lasting at least until 2010[B], the U.S. is no longer seen as supporting oil [product] demand growth," in industrialized nations, the IEA said.[/B]
As for sky-high oil prices, the IEA said that soaring demand for distillate fuels -- such as diesel, jet fuel and kerosene -- and a lack of sufficient refining capacity has played a key role in lifting crude oil prices. [B]"[Tightness] in the distillate market is arguably the single biggest cause of the current run up in prices," the report said. Natural gas shortages, Chinese diesel shortages and tightened European regulations on sulfur levels in diesel have all contributed to the soaring demand for middle distillates, it said.[/B]
"While crude oil prices should be determined by the supply and demand for crude oil, if strong demand or tight refining capacity leads to higher product prices overall, refiners would be prepared to pay a higher price for crude oil," the report said.
The IEA also said in its outlook that more than 3.5 million barrels a day of new production is needed each year just to hold world production steady. The global net decline rate of oil production was raised to 5.2% a year from 4% in the previous report.
The IEA sees oil projects on average being delayed by up to 12 months with costs doubling. As a result, the forecast for total OPEC and non-OPEC capacity in 2012 was cut by 2.7 million barrels a day.
The IEA expects biofuels to account for 50% of non-OPEC supply growth by 2013. But they will remain a small proportion of the total oil balance. Meanwhile, ethanol and biodiesel supply growth in the U.S. and Europe have met the equivalent of some one million barrels a day of crude oil output since 2005. However, the agency said it remains cautious about the future prospects of biofuels amid weak profit margins and increasing doubts about their environmental benefits and efficiency.
World refinery capacity is projected to increase by 8.8 million barrels a day during the period -- greater than the projected increase in oil production. However, the IEA said rising costs and other pressures could change that outlook, which could have a significant impact on the availability of oil products and crude