IEA sees tighter oil market ahead
By Simon Webb
LONDON (Reuters) - Surging demand and lower
OPEC production may start to deflate world fuel stockpiles that have been filling at the fastest rate in 15 years, the International Energy Agency said on Friday.
The rebound in consumption will come after fuel use grew less quickly than expected in the first nine months of the year, prompting the Paris-based agency to cut its 2006 global demand growth forecast by 130,000 barrels per day (bpd) to 900,000 bpd.
The outlook for world demand growth next year was steady at 1.45 million bpd to 85.9 million bpd, with China driving the expansion.
"Demand growth in the fourth quarter is expected to be exceptionally strong," said Lawrence Eagles, head of the IEA's Oil Industry and Markets division.
"And that is not even allowing for a cold winter. If we see a cold winter it will be even stronger."
Stocks have begun to decline, but it would take severe weather to make a dent in OECD inventories that rose by 1.15 million bpd in the third quarter, the biggest rise since 1991, the energy advisor to 26 industrialized nations said.
It is high stockpiles that spurred the Organization of the Petroleum Exporting Countries into its first output reduction in two years, effective from November 1.
Even before the 1.2 million bpd cut, OPEC was pumping less.
October output from the group that pumps more than a third of the world's oil was 29.4 million bpd, down 335,000 bpd from September and 400,000 bpd below the requirement for its crude during the fourth quarter, the IEA said.
At the same time, the world's thirst for oil will rise 2.4 million bpd from the third quarter, the IEA said, 400,000 bpd higher than its forecast last month.
"We would expect to see stock falls in winter anyway, but the OPEC cut doesn't help the situation," said Eagles.
Lower OPEC output lifted the group's spare capacity to 2.15 million bpd in October, up 210,000 bpd on the previous month.
Adding to OPEC's concerns that the market is not in balance, there are signs the economy is under strain in top consumer the United States, where stockpiles are weighing particularly heavy.
This year's demand data is distorted because year-ago comparison are skewed by last year's hurricane season, which had a major impact on oil and gas production in the U.S. Gulf.
Until September, the U.S. was showing a weaker-than-expected demand recovery, but since then cheaper prices at the pump have encouraged consumption.
On Friday, U.S. oil was trading at just above $60 a barrel, roughly 25 percent lower than its July peak of $78.40.
Regardless of any slowdown in the U.S. economy and oil consumption, China, the world's second biggest consumer, is expected to take up the slack.
"Even if the U.S. economy were to slow down, the world economy (and global demand) are likely to hold their ground," the IEA said.
"The structural support of Chinese consumption, economic growth, is still strong and likely to remain so, at least in the short term."
Producers outside OPEC are expected to meet an increasing share of demand, but this year they have failed to deliver.
The IEA cut its 2006 non-OPEC supply growth forecast by 90,000 bpd to 900,000 bpd.
Next year, however, non-OPEC production is predicted to grow by 1.78 million bpd to 52.7 million bpd, helping to reduce OPEC's burden by about half a million bpd to 28.3 million bpd, the IEA said.