LONDON: World oil stocks will swell in coming months unless OPEC producers pull back from a production surge that is replenishing inventories, the International Energy Agency said on Thursday.
“What is clear for now is that supply is running ahead of demand and stocks are building,” the IEA said in its monthly Oil Market Report. “While demand is rising, so too is global supply.”
The IEA, which advises 26 industrialised nations on energy policy, assessed likely demand for crude oil from the OPEC cartel in the fourth quarter at 28.3 million barrels per day, compared to August production of 29.3 million bpd.
If OPEC production continued at current levels it would imply a one million bpd stockbuild compared to last year when stocks were unchanged in the fourth quarter.
“On paper, Saudi Arabia would need to curb output to around 8.8 million bpd in the fourth quarter if it wanted to restrict stock build in consuming countries,” the IEA said.
The kingdom pushed production to around 9.5 million bpd in August, up more than one million bpd since April. Total OPEC production has risen by 1.5 million bpd over the last four months.
“The recent surge in OPEC production may equally prove temporary, and Saudi Arabia, alongside other producers, may in the months ahead curb production if it sees a constraint in the demand for its oil,” the IEA said.
OPEC ministers meet next week in Vienna to review policy for the fourth quarter. The group is expected to increase formal quotas to match actual supplies, which have been running more than 1.5 million bpd over the group’s official target. US crude was down nine cents at $42.68 a barrel on Thursday, nearly $7 below record peaks hit in August.
Demand surge easing: Rapid world oil demand growth will ease in the second half of this year, as a surge in Chinese consumption starts to slow, the IEA said.
Demand in the 82 million barrels a day (bpd) world market is forecast to grow by 2.9 percent in the third quarter this year compared to the same period in 2003, and by 2.2 percent in the fourth quarter.
This marks a slowdown from the five percent second quarter growth which stretched world oil supplies and pushed prices to record highs, said the IEA, advisor to 26 industrialised nations on energy policy. “Global demand growth is forecast to slow down in the second half of this year compared to the first half,” the Paris-based agency said.
China’s oil demand growth, which has caught oil markets by surprise, slowed to 14 percent in July, down from a meteoric 25 percent jump in the second quarter, the IEA said. It estimated Chinese demand at 6.32 million barrels per day in July. “Chinese demand growth remained, by any standard, extremely robust in July, but slowed markedly in comparison to the record-breaking rate of the first half of 2004,” the IEA said.
China’s second quarter consumption in 2003 was undermined by the impact of the SARS virus. It was unclear whether Chinese government efforts to engineer a soft economic landing would be successful, the IEA said. The threat remained of a sharp slowdown next year which would hit oil demand, it added.
“While apparent demand growth is expected to further slow down in the second half of this year, uncertainties surrounding the broader economy continue to cloud the oil outlook,” it added. “Conventional wisdom has it that any failure in engineering a soft landing this year would boost the risk of a hard landing later on.” reuters
