Opec rigidity will bleed oil markets - IEA
June 13, 2007
By From AFP
Paris - Oil markets risked tightening later this year if Opec was inflexible over supply, the International Energy Agency (IEA) said yesterday as it sharply raised its estimate for world oil demand.
The IEA pointed to unexpectedly strong demand in big emerging economies, a sharp supply fall last month and another crimping of supply this month because of routine maintenance on infrastructure outside the Opec zone.
The agency, which advises industrialised economies on energy policy, raised its forecast for daily demand growth to 1.7 million barrels a day, or 420 000 barrels more than it estimated a month ago.
"It seems difficult to escape the conclusion that the oil market will be tight in the second half," the agency said in its monthly oil market report, in which it lifted its forecast for global oil demand to 86.1 million barrels a day.
The growth will affect oil prices globally, and fuel costs locally.
Connel Ngcukana, the executive director of the SA Petroleum Industry Association, said this would soon feed through to the prices of fuel products, but he was unwilling to quantify the impact.
An industry analyst calculated the additional demand would lift crude prices by between $1 and $2 a barrel (4.5c to 9c a litre), which would raise fuel product prices by between 5 percent and 10 percent.
Domestic fuel prices are derived from a benchmark of global product prices. The price of all grades of petrol rose by 23c on June 6 to a record of R7.24 a litre for 95 octane at pumps in Gauteng.
The IEA explained: "While the US petrol market remains tight, stocks have begun to rebuild, and high crude stocks in parts of the US require heavy discounts to clear the spot market. But the situation can change rapidly, and here is where our concern lies."
While refinery constraints were attracting investment, shortages of skilled labour, capacity and equipment were slowing progress.
"We have an oil system that needs every inch of flexibility to deliver the products we need. Constraining that flexibility, by restricting supply or reducing stocks, risks provoking a price increase that would be detrimental to producers and consumers alike."
The IEA has been at odds with producers cartel Opec over the need to pump more crude. Late last month Saudi Arabia's assistant oil minister said there was no need for additional crude supplies as prices were stable despite the IEA prediction for crude demand.
The price of dated Brent rose above $70 a barrel late last month as markets tightened. Downstream tightness and early northern summer storms exacerbated the crunch.
However, economic concerns, weaker commodities and the passing of Cyclone Gonu in the Persian Gulf took pressure off prices as the IEA report went to press. July Brent fell 98c to $68.58 a barrel in London yesterday.
Market attention has focused on a shortage of petrol supplies in the US ahead of the driving season. Demand usually peaks as Americans travel for their vacations.
But the IEA put the onus on Opec. "Hopes for a moderation in crude prices in the short term lie both with Opec and the US petrol market," it said.
The IEA said oil demand would increase by 2 percent this year.
It highlighted unexpectedly strong figures from leading countries outside the Organisation for Economic Co-operation and Development, where product demand was adjusted upwards by 250 000 barrels a day last year and 400 000 barrels a day this year.
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