IEA again cuts its estimate for annual growth in demand

Faltering economies and high oil prices have lessened the world's thirst for crude, leading a respected energy study to again cut its estimate for annual growth in demand. The International Energy Agency reduced its projected demand growth by 510,000 bpd of oil -- the seventh downward revision in its forecast since last summer, when the prospects for US and global economic activity looked much brighter.

The Paris-based IEA is the energy watchdog of the Organization for Economic Cooperation and Development, which represents the interests of oil-dependent wealthy countries. Although average crude prices fell by around $ 1 per barrel in June, they still are sufficiently high to dampen demand and encourage some consumers to switch to natural gas as a cheaper source of energy, the IEA said in its monthly oil market report.
At the same time, high oil prices -- engineered by OPEC -- have created a strong stimulus for oil production, particularly by Brazil, Angola and member states of the former Soviet Union. Investment in crude output is set to increase further in 2002, and as supplies grow, the report said, prices for crude and refined products would ultimately fall. That should mean good news for motorists and people who use heating oil to warm their homes.
"OPEC's had a very good run this year. The pendulum is certainly swinging in favour of consumers now," said Peter Gignoux, head of the petroleum desk at Salomon Smith Barney in London.

Since the IEA prepared its report, Iraq has resumed exporting oil following a halt in shipments due to a dispute with the United Nations, which regulates Iraqi trade. Prior to its export suspension in June, Iraq shipped 2.1 mm bpd of oil, or 3 % of the world's supplies. Iraq resumed pumping oil, and its fresh barrels could immediately affect prices in the spot market, Gignoux said. "You possibly could have 10 mm barrels of instant oil on the market," he said.
Venezuelan oil minister Alvaro Silva said he did not expect Iraq's decision to further lower prices and that OPEC will probably maintain its current production levels when it meets in September. In its latest report, the IEA predicted that demand for crude would increase this year by 460,000 bpd to a total of 76.0 mm bpd. That rate of growth is only a fifth of what the agency had foreseen last summer.
Last month the agency said it expected world supplies of oil to tighten as refiners bought more crude to meet seasonal consumer demand for gasoline. However, gasoline inventories rose in June, causing US prices at the pump to collapse. The summer driving season is half over, and gasoline inventories are now at comfortable levels, the IEA said.

Gignoux added that unlike last year, heating oil stocks also are "in good shape." Oil prices backed off in June, but US and European benchmark crudes still averaged more than $ 27 a barrel during the month.
"A quicker recovery in global economic activity would increase oil demand growth. Similarly, a reduction in crude oil prices would stimulate demand," the IEA said. Contracts of North Sea Brent for August delivery fell 10 cents a barrel to close at $ 25.04 Friday on the International Petroleum Exchange in London.
August contracts of light, sweet crude fell 21 cents to settle at $ 26.59 a barrel on the New York Mercantile Exchange. World crude supplies decreased by 1.9 mm bpd in June to 74.4 mm barrels, due mostly to the missing Iraqi crude, the IEA reported.
The agency expects output from non-OPEC countries to increase by an average of 590,000 bpd this year and an average of 740,000 barrels in 2002. Russia, Kazakhstan and other producers from the former Soviet Union will account for more than half of this increase.
The 10 members of OPEC other than Iraq produced 24.65 mm bpd in June, 130,000 barrels more than the previous month. The increase, much of which came from Indonesia, helped somewhat to make up for Iraq's export suspension.